Thinking of Starting a Business? What you Need to Know.

1. Thinking of Starting a Business? What you Need to Know. Bernie Howaniec, Certified SCORE Mentor 1

2. 70+ Successful and experienced executive volunteers Serving South East Wisconsin Low cost workshops Free Mentoring Face to Face E-mail Location 310 W. Wisconsin Ave. Suite 585 Milwaukee, Wi. 53203 414-297-3942 Score.28@scorevolunteer.org www.scoresewisconsin.org About SCORE Resources for Small Business Business Proposition: You get an experienced, successful business person(s) on your team for unlimited advice, and it is free! 2

3. Briefly tell us a bit about you: Your name Your Business idea(s) What you want to learn today Nice to meet you! 3

4. Questions and Discussion Welcome • Ask questions as they come up • Share your experiences with the group

5. Myths Business Options Assessing Your Journey Organization, Insurance, Regulations Funding and Cash Management Business Plans Other things you need to know Agenda 5

6. Small Businesses are the Backbone of the US Economy • 27.2 million small businesses • 75% are solo entrepreneurs (one person with no employees) • The majority of all new jobs in the US come from small business.

7. Starting Your Business: Myths Myth: “An invented story, idea or concept”. Reality:”A real thing or fact”. 7

8. Myth: All I need is a good idea to be a successful entrepreneur. Myth #1 • Reality: A good idea is a great start, but need: • Planning • Money • Risk taking • Implementation • 24/7 work 8

9. Myth #2 Myth: If you go out on your own, you won’t have to work so hard or such long hours. • Reality: • An entrepreneur has tremendous responsibility and work, around the clock first year! • No paid vacations, sick leave • Difficult but rewarding work 9

10. Myth: You’ll be able to deduct everything so you don’t have to pay taxes. Myth #3 • Reality: • Taxes are based on net income. • You will be able to deduct a few things, but strict regulations apply. • Keep good records. • Don’t mess with the government! 10

11. Myth: If you work independently, you won’t have to report to a boss. Myth #4 Reality: You don’t have a single boss, you have many. Clients, customers, vendors, government, creditors, etc. Your challenge is to keep all of them happy. You don’t “boss” employees around any more, you lead them! Communication, communication, communication! 11

12. Myth: Business owners get to do the work they want to do and only what they find interesting. Myth #5 • Reality: Small business persons who do what they want to do, fail! • Have to pay attention to: • Finance • Marketing • Sales • Management • Etc. 12

13. Myth: If you choose to be self-employed, you’ll be limited in what you can achieve, since you’ll be working alone. Myth #6 Reality: The limitations are created mostly by the space between your ears. Be realistic, but don’t trap yourself with self-imposed limitations. You can make a difference. 13

14. Myth: Most new businesses fail in the first year. Myth #7 14

15. Reality: Business Success Percent ofNew Businesses after Four Years 55-60% Successful! (Source: SBA) 15

16. Why do new businesses fail? • Poor cash flow management skills. • Starting out with too little money. • Lack of a well developed business plan. • Incorrect pricing, not understanding costs. • Ineffective use of both time and money. • Not understanding personal weaknesses. • Denying problems until it’s too late. • Failing to properly market the business. • Lack of relevant business experience.

17. Why do new businesses fail? • No competitive analysis. • No sustainable differentiators. • Using credit cards to finance debt. • Not getting and making payments on time. • No stress management. • Poor hiring skills. • Investing money in real estate instead of leasing to make funds available for critical business activities. • Lack of awareness of relevant local, state •  and federal regulations.

18. Good choice of time and location Adequate capital Ability to manage and multi-task Education/experience in field Strong work ethic Effective time management Willingness to ask for input from others Critical Success Factors 18

19. Starting Your Business Business Options Do I start from “scratch”, buy a business, franchise???????? 19

20. Not hampered by previous image or technologies Can choose location, name, logo, relationships Can explore new markets and directions See your dreams come true No base, must build all new Greater risk No track record = difficulty in financing See your dream become a nightmare Starting a New Business ADVANTAGES DISADVANTAGES 20

21. Established clientele, suppliers, location Known quantity, proven formula/name Help in starting and running business Can review records Easier to obtain financing Potential hidden issues: debts, poor reputation, loyalty to owner, out-of-date inventory or transfer issues No guarantee that success will continue Buying a Business ADVANTAGES DISADVANTAGES Due Diligence a must – Determining value, not an exact science. 21

22. Proven image and product/service Marketing/Sales power Limited experience Training, professional guidance Continued consulting relationship Access to other franchisees for help Loss of control - not always your own boss Franchise = royalty and other fees Operational boundaries and limited choices Binding contract Franchisor problems are your problems Buying a Franchise ADVANTAGES DISADVANTAGES 22

23. Starting Your Business Assessing Your Entrepreneurial Journey 23

24. Convenient work location Less expensive Flexible schedule Tax Advantages - Sq Ft of total home - Percentage of utilities Zoning or deed restrictions Isolation from others Difficult financing Family distractions IRS scrutiny Home Based Businesses ADVANTAGES DISADVANTAGES 24

25. Allows operation in a not-for-profit status – no owners May qualify for government or foundation grants Protection from liability for directors and employees Can pay salaries to employees and consulting fees for contractors Focus on educational or charitable purposes and cannot profit those who created the organization All profits remain within the organization Must apply and qualify for 501c3 status or sales tax exemption Non Profit ADVANTAGES DISADVANTAGES 25

26. Online Business ADVANTAGES DISADVANTAGES • Lower startup costs • Expanded geographic reach • Convenience & accessibility • Flexibility • Low conversion rates • Low barriers to entry = higher competition • Visitor expectations • No personal contact/ limited sensory info 26

27. Entrepreneur “One who organizes, manages, and assumes the financial risks of a business enterprise”.

28. Self-starter Resourceful Responsible Organized Hard worker Persistent Decisive Healthy Supportive family Entrepreneur Characteristics 28

29. How Many Hats Will You Wear? For example; are you comfortable in a Sales role? 29

30. Create a SWOT analysis for your business to determine your readiness • Have sufficient risk capital • Believe I understand my clients needs • Have experience in this field with former company • Have never run a successful business before • Lack Capital and resources to execute my plan • Not sure I can make a profit • Initial market research indicates large market opportunity for my services • Clients I’ve worked with value my expertise • It appears to be an underserved market • Don’t know how many competitors I’ll face • Not sure how competitive my price will be to make a profit • Not sure if I have the staying power

31. Starting Your Business Legal Forms, Insurance, Regulations, Advisors 31

32. Sole Proprietorship*/Partnership* No liability protection Limited Liability Company* (LLC)/(LLP) Liability protection “S” Corporation* Liability protection “C” Corporation Liability protection Pay corporation and personal tax Business Organization Forms *Tax efficient 32

33. Keep It Simple Sole proprietorship or partnership If liability and/or tax are a concern, an LLC or S-corporation Recommendations for Start-ups LLC/LLP makes the most sense! 33

34. Property Liability Motor Vehicles Umbrella Liability Worker’s Compensation Health Life Insurance Considerations 34

35. Business Licenses and Approvals Labor Laws Immigration Laws IRS and Social Security Withholding & Payments Government Regulations 35

36. Banker Lawyer Accountant Insurance Agent Business Mentor Every Business Owner Needs: 36

37. Starting Your Business Funding andCash Management 37

38. Total monthly cost of living Areas where you can cut back Outstanding debt Amount in savings Total amount needed to cover 6 to 12 months of personal expenses Personal Budget Considerations 38

39. Essential Considerations: Tools and equipment Leasehold improvements Licenses and permits Professional fees Initial inventory Working capital reserve fund to cover initial months of minimal revenue. Start-up Cash Needs 39

40. Salaries Rent Insurance Taxes and fees Advertising Loan interest/ principal Utilities Maintenance Operating Cash Needs These are your fixed expenses 40

41. Growth Costs Money $ Consulting $$ Retail/Restaurant $$$ Manufacturing • Different for every type of business. • Heavy manufacturing – estimate cost $1 (one time) for every $1 growth • Eventually will need to expand, add machines, etc. • Goes in square waves • Distribution industry – estimated costs $.25-.50 (one time) for every $1 growth • All businesses have to spend money to grow. • Where do you get your growth money? 41

42. Equity Signifies Ownership Sources of Capital Debt Does NOT Signify Ownership • Personal savings • Family and friends (3 F’s) • Partners’ contributions • Profits retained in the business • Angel investors/clubs • Banks orcredit unions loan* • Bank or credit union line of credit* • Credit cards (not recommended) • * Usually guaranteed by SBA Grants 42

43. Lender’s View of Borrower • Five C’s of Credit • Character • Collateral • Capital Position • Capacity (to repay) • Conditions (recession?) • “Show stoppers” • Low credit rating, < 680 • No or low collateral • Industry segment • No business plan 43

44. Open a separate bank account for your business ASAP Deposit all receipts “in tact” Use a petty cash fund Separate sales tax receipts on your books Hang on to cash as long as possible Reconcile bank account monthly Cash: Most Important Asset 44

45. Starting Your Business Business Plans &Things you Need to Know 45

46. A good business plan allows you to: Think through all of the issues. Set realistic goals. Reduce risk substantially. Measure progress. Understand your business Manage your business effectively Business Plan Importance 46

47. Business Plan outline

48. Brief description of the business How much money needed How the money will be used Whether you will seek a loan or investors When you will repay loans Executive Summary First exhibit, written last! 48

49. Description of business Product or service Market need Location Competition Management and personnel Use of new funds The Business 49

50. Definition of offering? Broad or narrow? Two different strategies, tough decisions! Functionality and packaging? Quality? Differentiation? What is different than the competition? Why would they buy it from you rather than the competition? What if you don’t have differentiation? Product and/or Service 50