HOW TO START and MANAGE YOUR OWN BUSINESS

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HOW TOSTART and MANAGEYOUR OWN BUSINESS
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www.score476.org
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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.
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Agenda

• The Owner / Managers 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

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TheOwner / Managers Role
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Americas Small Business The Pride of America

• 28 Million Small Businesses
• Generate 55 of All Goods Services
• Employ 57 of the Nations Workers

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Small Business Provides

• Long-Term Rewards
• Substantial Income
• Financial Security
• Independence
• Recognition
• Satisfaction

• Short-Term Risks
• Failure Can Mean the Loss of
• Income
• Investment
• Home or Other Collateral
• Self-Esteem
• Personal and Family Relationships

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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!!!

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Owner/Manager Wears Nine Hats

1. Leadership
2. Planning
3. Decision-Making
4. Problem-Solving
5. Controlling
6. Marketing / Advertising
7. Financial Records
8. Business Records
9. Personnel

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You May be Uncomfortable Wearing Many Hats

• Find a Mentor
• Establish an Advisory Board
• Request Help from SCORE
• Hire an Expert in That Area

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Your Business Plan
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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

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Business Plan Outline

• Executive Summary
• Objectives / Goals
• Mission Statement
• Business Description
• Market Analysis
• Financial Projections

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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

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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

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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

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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

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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

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Business Objectives

• Quantifiable, Measurable
• and
• 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

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Planning

• Provides for
• Staffing
• Materials
• Equipment
• Facilities
• Operating Systems (Methods and Procedures)
• Money

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Financial Projections

• Establish Pricing and Margins
• Determine Operating Expenses
• Fixed/Variable
• Establish Budgets
• Develop Cash Flow Projections
• Determine Start-up Expenses

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Proforma Financial Statements

• Cash Flow Statement
• Profit and Loss Statement
• Balance Sheet
• Break-Even

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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

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Discussion Review

• The Owner/Managers Role
• Risks and Rewards of Business Ownership
• Steps to Minimize Risk
• The Business Plan

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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 [phone]
• E-mail Info_at_score476.org

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Issuesfor aSmall Business
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AGENDA

• The Start-Up Process
• Lenders
• Real Estate
• Considerations for Success

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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

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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

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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.

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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

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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

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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

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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

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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 Lease
• Example 2 Years with 3 One-Year Options
• Everything is Negotiable
• Triple Net (Gross Lease / Net Lease)
• Have an attorney review before signing

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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

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Discussion Review

• Make a Checklist
• Conduct Research
• Work With Professionals
• Seek Financing
• Determine Real Estate Needs
• Consider Keys to Success

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Business Record-KeepingHow to Keep Scoreon
Your Operations
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What Are the Uses

• Information on the Financial Health of Your
  Business
• Reports to Insurers, Lenders, etc.
• Reports to Governmental Agencies

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Accounting Methods

• Cash
• Accrual

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Elements of a Record-Keeping System

• Chart of Accounts
• Documents
• Financial Statements

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Pro-Forma Financial Statements
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Cash Flow
March March April 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
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Profit and Loss

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
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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

Owners Equity
Investment 5,800
Profit Year-to-Date 400
Net Worth 5,400


Liabilities Net Worth 9,400
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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

Monthly Costs A 10,000
Gross Profit B 25
Sales Needed to Earn 10,000 A B 10,000 25 40,000
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Chart of Accounts

• Revenues
• Cost of Goods Sold
• Expenses
• Current Assets
• Fixed Assets
• Other Assets
• Current Liabilities
• Long Term Liabilities
• Equity

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Supporting Documents

• Vendor Invoices
• Checks Bank Reconciliations
• Customer Records
• Employee Records, Personnel Files, etc.
• Records related to Tax Filings
• Car, home, etc.
• Other

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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

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Semi-Monthly Procedures

• Prepare Payroll for Processing
• Review Payables

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Monthly / Quarterly Procedures

• Prepare Financial Statements
• Analyze Results
• Take Necessary Corrective Action
• Reconcile Bank Statement
• Prepare Reports to Government Agencies
• Age Accounts Receivables
• Pay Sales and Payroll Taxes, etc.
• Check and Reconcile Inventory on Hand

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Annual Procedures

• Prepare Financial Reports
• Prepare and File Annual Reports with Government
  Agencies
• Prepare Operating and Cash Flow Budgets for
  Coming Year

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Selecting the Record-Keeping Method

• Manual Spread Sheets
• Personal Computer - QuickBooks
• Computer Systems - ERP
• Outside Service Providers

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Evaluation of Operations

• Balance Sheet
• Income Statement
• Statement of Cash Flow
• Financial Ratios

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Business OrganizationandRegulations
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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

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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

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Independent Contractors

• Who are they?
• Distinction between
• Independent Contractors
• Employees
• IRS Guidelines                     

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Financial FactorsandSources of Capital
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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

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Type of Loans

• Short
• Intermediate Term
• Long Term
• SBA Guaranteed Loans

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Purpose of Loans, Terms Conditions

• Working Capital
• Inventory
• Equipment
• Business Acquisition
• Real Estate
• Other

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Interest Rates

• Risk vs. Rate
• Type of Lender
• Competition
• Finding the Best Rate

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Credit Qualifications

• Five Cs of Credit
• Character
• Capacity
• Collateral
• Capital
• Conditions (Loan and Economic)
• Lenders Point of View
• Dont like much risk
• Safety Concerns
• Qualification for Start-ups
• Good credit
• Business plan
• 25-35 Own cash
• Loan Interview
• Decision Making Process

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The Loan Package / Proposal

• See Recommended Checklist (attached)
• Borrower Must Know the Package (Details)
• Borrower Must Do the Homework

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Marketingand Advertising
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What is Marketing?

• The Process of
• Identifying potential customers
• Creating customers
• Keeping customers

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Successful Marketing Depends on

• Knowing who your customer is
• Knowing all about your competition
• Understanding your market trends

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Why Do You Need to Know All About Your Customer?

• Project market size
• Identify customer needs
• Select Price, Product, Presentation

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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

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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

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How Can You Learn More About Your Business
Customers?

• Experience
• Someone else in the same business
• Communication
• Trade associations
• Suppliers

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What Do You Need to Know About Your Competition?

• EVERYTHING!
• Who and where they are
• Strengths
• Weaknesses
• Customer Policies Pricing / Terms / Variety

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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

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Image

• Create an Image
• for Your Business that . . .
• Matches your customer needs
• You feel comfortable with
• Separates you from your competitors

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Marketing Strategies
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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

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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

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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

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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

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Pricing
Price is Determined by The value of your
product or service to the client Competition
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Effective Advertising

• Know Your Customer
• Focus advertising on current and potential
  customers
• Establish advertising goals and measure results

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Effective Ads
A I D A
ttention nterest esire ction
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Advertising Media

• Direct Mail
• TV
• Radio
• Newspapers
• Internet
• Email
• Press Releases

• Newsletters
• Seminars
• Trade Shows
• Yellow Pages
• Sponsorships

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Referrals

• From other businesses
• From satisfied customers

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The Sales Call

• Build a relationship
• Offer incentives
• Coordinate with advertising and promotions
• Follow-up, Follow-up, Follow-up, Follow-up

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Sources of Information
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About Competitors

• Suppliers
• Trade Associations
• Visual
• Interview Customers
• RMA (Risk Management Association)
• Annual Statement Studies
• Prepare a Competitive Matrix

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