Starting Your Own Business

A Guide for Georgia Entrepreneurs

www.georgiasbdc.org

GEORGIA SBDC NETWORK

University of Georgia SBDC

Georgia State University SBDC

University of West Georgia SBDC

Kennesaw State University SBDC

Clayton State University SBDC

Georgia Southern University SBDC

Valdosta State University SBDC

Introductions

Hello, my name is…

Mark Whipkey

The Agenda

• Introductions• Entrepreneurship: A Big Decision!

• Market Feasibility: Will It Sell?

• Financial Feasibility: Will I Make A Profit?

• The Business Plan: Your Road Map• Financing Your New Business• Legal and Risk Management Issues• Financial Record-Keeping• New Business Success

Entrepreneurship • What is your Primary reason for going into business?

• Self assessment – Do you have what it takes?

• Goal setting – Personal & Business– Short term– Long term

• Is your business idea feasible?– Marketing– Financial

Field of Dreams

If you build it, they will come . . .

Market Feasibility

Market Feasibility

• What is your Target Market?

• How large is the Market?

• Who are your Competitors?

• How does your Product/Service Compare?

• How much do you expect to Sell?

Market Feasibility Market Research

– Secondary• Industry Associations• Government Publications• Geographic Information Systems• Internet• Public Libraries

– Primary• Observations• Surveys• Focus Groups• Mystery Shopping• Telephone Interviews

Secondary Research Websites• GALILEO – full-text articles, UGA Library/Public Library• Industry Associations – national & local chapters• www.entrepreneur.com – business articles, start-up guides• www.inc.com – business articles, start-up guides• www.census.gov – population, migration, demographic• www.bls.gov/home.htm - Bureau of Labor Statistics- labor, spending• http://www.georgiastats.uga.edu/– Georgia demographics• http://www.terry.uga.edu/selig/ – Georgia demographics• www.fedstats.gov - demographics• http://ga2000.itos.uga.edu - Georgia GIS• http://www.dot.state.ga.us - traffic volume maps• http://www.claritas.com/home.htm – market research, Go to “Free Stuff”• www.bizstats.com - financial statistics• www.IBISworld.com – Industry reports

Market Feasibility

Market Feasibility

• NAICS – North American Industry Classification

• “NAICS (pronounced Nakes) was developed as the standard for use by Federal statistical agencies in classifying business establishments for the collection, analysis, and publication of statistical data related to the business economy of the U.S.”

• http://www.census.gov/epcd/www/naics.html

• Enter business type and click “NAICS Search”

Get involved with your business community!

• Small Business Development Centers– www.georgiasbdc.org

• County Economic Development Departments• Chambers, DDA’s, Networking Organizations• Industry Associations• Write Articles

– Your industry’s publications– www.ezinearticles.com

• www.BusinessTechnologyRadio.com• Read you local newspaper’s business section

Financial Feasibility Personal Living Expenses – Start-Up Costs – Operating Costs

– Accounting/legal– Buildout/renovation– Utility deposits– Lease deposit– Land/building– Fixed assets– Installation– Inventory– Supplies– Pre-opening marketing– Organizational costs– Closing costs

– Accounting/legal– Owners’ compensation– Salaries/wages– Cost of Goods Sold– Supplies– Rent/Lease payments– Telephone– Utilities– Insurance– Maintenance/Repair– Loan payments– Miscellaneous

One Time Costs Recurring Costs

$200$800

$500

$100

$300$1900

p. 29

$700

$60

$100

$50$50

$100$200

$100

$200

p. 30

$200

$1760

$1000

$760

$200

$960

p. 31

$960

$200

$800

$300$150

$100$100$200$200

$3010

p. 32

$1900

$15050 ($3010 x 5 mos)

$16950

p. 33

Show Me the Numbers!

• Where do I get the numbers?

– Reference materials (industry standards)– Check w/competitors in other locations– Find a lawyer or accountant who represents

companies similar to yours– Suppliers/equipment sellers to your industry– Call local competitors for information on

prices/services

What you need to know…

• Balance Sheet

• Income Statement

• Cash Flow Statement

• Breakeven Analysis

Financial Feasibility

Financial Feasibility

Balance Sheet – Financial Health

• Shows what a business owns, owes & what’s left over

Assets = Liabilities + Equity

• Shows a business’s net worth (financial progress)

Assets – Liabilities

-Track progress yearly

• Shows Accounts Receivables, Accounts Payables, Inventory

p. 36

Financial FeasibilityIncome Statement – Profitability

• Revenues – Cost of Sales = Gross Profit Gross Profit – Expenses = Net Profit

• Net Profit is taxable.

• If your Gross Profit is too low, then…– You’re setting your prices too low, or – You’re paying too much for your goods, or – Both.

• Expenses can be fixed or variable.

• Keep an eye on your expenses!

p. 40

Financial Feasibility

Cash Flow Statement – Solvency

• Cash Inflow vs. Cash Outflow

• Shows a business’s ability to repay its debts

• A business can be profitable and still have poor cash flow– Accounts Receivable (not cash until you collect it)– Principle on Mortgage (doesn’t show up on Income Statement)– Equipment (doesn’t show up on Income Statement)– Inventory (only Cost of Goods Sold shows up on Income Statement)

• Depreciation (not cash – doesn’t show up on Cash Flow Statement)

p. 43

p. 44

Financial Feasibility

Break Even Analysis

• Total Revenues = Total Expenses

• Level of sales at which there is neither profit nor loss

• Can the business generate enough revenue to surpass the breakeven point?

• Breakeven = Fixed Costs/Contribution Margin

The Business Plan

• How most of us react when we hearthe words “Business Plan”…

Why a Business Plan?

• It forces you to focus• It tests your commitment• It brings you down to reality• It gives you a benchmark• Required by banks and investors

Preparing a Business Plan

Narrative

– Executive Summary– Business Description– Mission Statement– Market Analysis– Competition– Location– Market Strategy– Management– Personnel– Operations

Financials

– Sources & Uses– Assumptions– Balance Sheets– Cash Flows– Income Statements– Breakeven Analysis– Collateral Offering

Preparing a Business Plan

Supporting Documents

– Resumes– Personal Financial Statements– Income Tax Returns– Lease Agreements– Purchase Agreements– Construction Estimates– Market Research– Explanations

Preparing a Business Plan

Financial Sources

Two ways to raise capital:

• Equity Financing– Private investors– No collateral– Will want some level of ownership– Performance requirements may be placed on

business

• Debt Financing– Banks don’t want ownership in your business– They just want you to repay your loan

Financial Sources

• Self• Family/Friends• Banks, (p.64)

– Conventional loans– SBA loans

• Stock• Venture Capital

Obtaining a Loan

The Five C’s of Credit

Character

Capacity

Capital

Collateral

Conditions

SBA Guaranteed Loans

– Guarantee

– Types

• 7A

• 504

• Patriot Express

– Misconceptions

– The process

Obtaining a Loan

Documentation Requirements

– Business plan– Personal financial statement– Tax returns– Cost estimates– SBA paperwork– Financial statements (pro forma)– Legal agreements– Corporate documents– EPA studies

Obtaining a Loan

• Domestic Need

– Daycares (adult/child)

– Research (SBIR/STTR)

• Economic Development

– Revolving Loan Fund Moneys

– OneGeorgia

– Downtown Development Authorities

• www.grants.gov

Grants

Legal Structure

• Sole Proprietors

• Partnerships

• Corporations- C-Corps- S-Corps

• LLC’s

Legal Structure

Sole Proprietor

• One owner• Easy formation• Don’t have to register with State• Dissolves with death or disability of owner• Tax Form 1040 + Schedule C / Schedule SE• Unlimited Liability – Owner is personally liable

for all of the business’s debts

Legal Structure

Partnership

• Two or more owners• Register name with State• Partnership agreement• Dissolution• General vs. Limited• Tax Form 1040 + Schedule SE + Form 1065• Unlimited Liability

Legal Structure

C Corporation• Most expensive, complex• One or more owners• Must be approved by Secretary of State• Can raise capital through the sale of stock• Separate Legal Entity (Business pays their own

taxes)• Continuity• Double Taxation• Tax Form – 1120 or 1120A (Short Form)• Limited Liability

Legal Structure

S- Corporation• Must start out as a C-Corp• 75 or fewer owners (shareholders)• No Foreign Investors• No Wholly-Owned Subsidiaries• Consent of All Shareholders • Continuity• No Double Taxation• File IRS – Form 2553 • Tax Form 1120-S• Limited Liability

Legal Structure

Limited Liability Company

• Hybrid of Partnerships and Corporations– Liability protection of a corporation with the flexibility of a partnership

• One or more “Members”• Register with Secretary of State• No “Continuity of Life”• Pass through Taxation• Limited Liability

Choosing a Trade Name

• All corporations & LLC’s must register with the State– Check registered names:

• https://cgov.sos.state.ga.us/Account.aspx/LogOn?ReturnUrl=%2fhome.aspx

• Check the federal register of names patented and trademarked – www.us.pto.gov

• Google your business name• File trade name locally

Compliance Issues

• Local

• State

• Federal

Local Compliance Issues• Planning and Zoning

– Zoning Restrictions may apply to• Property• Parking• Signage• Home Based Businesses

• Certificate of Occupancy– Local Fire Marshall will inspect for fire code compliance

before building can be used• Certificate of Building Inspection

– Local building inspector certifies use of accesses, restrooms, and construction types

• Licenses:– Business License/Business Tax Certificate/ Occupational Tax

Permit – obtained at city hall, county courthouse or city admin building

– Liquor License: Check with city license and tax department

State Compliance Issues• Permits, Licenses, Inspections:

– Over 30 types of businesses • www.sos.state.ga.us/plb (p.81)

– Food Sales – Ga. Dept of Ag.• www.agr.state.ga.us (p.81)

- Food Service- local environmental health dept.

• Trademarks, Service Marks, Patents, Copyrights may be registered for legal protection (p. 82)

• Sales and Use Tax:• Apply for sales tax number with State of Georgia and get

instructions for collecting, reporting and remitting tax monies– www.dor.ga.gov

More State Compliance Issues

• State Income Taxes – Forms needed depends on the type of business entity

• Worker’s Compensation Insurance– Required by law for employers with 3+ employees– Regulated by State but sold by private insurance companies– http://sbwc.georgia.gov (p.87)

• State Unemployment Insurance Tax (SUTA) – 2.7% of first $8,500 of employees yearly earnings– www.dol.state.ga.us (p.86)

Federal Compliance Issues

• Federal Income Taxes– Federal Tax ID Number (EIN) – Form SS4

- Can apply online; free- www.irs.gov (p.84)

• Employment Issues:– FICA Insurance (S.S. & Medicare) – Form 941

-calculated based on employee’s salary

- www.irs.gov (p.85)– Federal Unemployment Tax (FUTA) – Form 940 or 940EZ

• 0.8% of first $7,000 of employees yearly earnings- Employee vs. Independent Contractor

Employee Taxes

FICA

SUTA

FUTA

FED W/H

Employee Employer

7.65%7.65%

2.70%

0.08%

X%

15.3%

Legal Issues - Insurance

Risky Business• Using hazardous materials• Operating heavy machinery• Manufacturing or selling edible goods• Building or repairing structures or vehicles• Caring for children or animals• Alcohol• Driving as main part of job• Allowing activities that may result in injury

Recordkeeping systems

– Manual

– Software – • QuickBooks®• Microsoft Small Business

Accounting 200X• PeachTree• Industry Specific

Accounting

• Lack of capital• Lack of experience• Unwarranted personal expenses• Poor location• Poor Inventory management• Excessive capital equipment• Poor credit / collections• No business plan• Inadequate marketing• No competitive edge

Why Businesses Fail. . . .

• Watching cash flow• Developing time management skills• Proper recordkeeping• Seeking advice from qualified experts• PLAN ! PLAN ! PLAN!• Training your employees• Paying attention to customers• On-going market research• Community Involvement

Avoid Mistakes By . . . .

www.sba.gov

• U.S. Small Business Administration

• SBA Loans & funding

• Starting & managing a business, licenses and permits, contracting..

THANK YOU!!!Call the SBDC office, if you would like to discuss:

Business plan development Financing alternatives Market research Cash flow analysis..and more!

Sara Spinks(706) 542-7436

www.athenssbdc.org