Winning Ideas For Small Business Success

According to the latest Internal Revenue Service projected figures, there are 18.6 million small businesses in the United States. And the U.S. Small Business Administration reports that small businesses (including the self-employed) account for 58 percent of the U.S. workforce and 40 percent of the gross national product. Moreover, a National Science Foundation analysis reveals that small business has been a more prolific source of innovation per research and development dollar than large business.

This new age of the entrepreneur is also an age of opportunity. For example, a substantial number of today's small business operators are women. They own 3.74 million small businesses and generate more than $65 billion annually in gross receipts. Between 1977 and 1983, women-owned businesses increased at twice the rate of businesses owned by men.

But success isn't automatic. It isn't based on luck, although a little luck never hurts. What it does depend on is how you play the game; in other words, making all the right moves. An even then, there are no guarantees.

Starting a small business is risky business, and the odds of succeeding are poor. According to the U.S. Small Business Administration, the majority of small businesses fail in their first year and 95 out of 100 fail within their first five years.

These figures aren't to scare you; just prepare you for the sometimes rocky path ahead. Underestimating the difficulty of business is one of the biggest obstacles entrepreneurs face.

However, success can be yours if you are patient, willing to work hard and take all the necessary steps. What follows are 10 tips to small business success. The information was gathered from a variety of experts and sources. While we make no promises with this information, we can say that if you heed this advice, your chances for success will be greatly increased.

1. KNOW YOURSELF

Studies have shown that entrepreneurs are persevering and not easily defeated. They thrive in a challenging environment and have a tremendous need to be in control. They turn diversity into opportunity. They are risk takers. They welcome responsibility, and they are willing and able to make decisions.

Moreover, successful entrepreneurs are patient and able to wait out the sometimes slow beginnings of a business. They also are able to learn from their mistakes, trust their own judgment and have an optimistic outlook.

Take a good look. Do those traits describe you? "Know yourself and be willing to work 60 hours a week. Starting a business is one of life's biggest commitments," advises Roy Nordman, director of Emerging Business Services Practice for the San Francisco office of Coopers & Lybrand.

Small business owner Nancy Wansick, of Wansick Graphics, echoes those sentiments: "My business has become my whole life. Day becomes night and work has become play."

It's obvious: you have to love you work. And if you choose a business that meshes with your personality (the answers to the above questions should tell you about your personality), those extra hours spent won't be as difficult. The key is to identify what you enjoy doing the most and then find a business opportunity that makes use of your skills and interests.

2. PLAN YOUR BUSINESS

"The business plan is a necessity, if the person who wants to start a small business can't put a business plan together, he or she is in trouble," says Robert Krummer, Jr., chairman of First Business Bank in Los Angeles.

Despite the critical nature of a business plan, many owners and managers drag their feet when it comes to preparing a written document. They argue that their marketplace changes too fast for a business plan to be useful or that they just don't have enough time-they are too busy running the business. But just as a builder won't begin construction without a blueprint, eager business owners shouldn't rush into new ventures without a business plan. For without a business plan, you will end up going from crisis to crisis, putting out fires, never looking at your operation in the long term.

According to business plan experts, an effective document answers these questions: Who are you? What do you do? What resources do you have? Where are you going? What do you need to get there? How will you measure performance? Your plan should contain:

- A resume of the background of all the business principals;
- A thorough description of your product or service;
- An analysis of the current marketplace situation;
- Problems and opportunities facing the company;
- A market analysis showing the segment of customers you have targeted; -
Realistic objectives and goals relating to sales, market share and profits;

- An explicit statement of marketing strategy (implementation policies are impossible without explicit strategy plans);
- A detailing of action programs or tactical plans for carrying out strategies and accomplishing goals;
- Preliminary budgets and projected profit and loss statements;
- Integration of manufacturing and financial plans with the marketing plans; and
- Intended controls that measure actual versus planned performance.

In other words, the key is not the cost or size of your plan but the content. It is an important management tool for planning your business, setting goals and a time frame, and measuring your business's performance. All business plans are not the same. They vary depending on the type and size of your business. However, all plans should be organized into distinct sections: an executive summary, a description of product or service, a marketing analysis and plan, a description of the management team, a financial strategy and an appendix.

Your business plan should be thoroughly prepared, because a sloppy, poorly thought out plan minimizes your chances for outside funding. Moreover, the U.S. Small Business Administration and most private lenders require a business plan when making a funding decision. It demonstrates that you have carefully thought about the basics of your business and that you can realistically plan for the future.

In addition, it's a good exercise for you. Putting your thoughts down on paper helps you to clarify why you are in business, who your customers and competition are, your strengths and weaknesses and your plans for the future. Plus, it helps you to set realistic goals and guide your operation toward meeting those goals.

There are two suggested ways to prepare your business plan. You may obtain free and confidential assistance from the Service Corps of Retired Executives (SCORE), an organization of skilled professionals who can counsel you in your preparation. Or you may decide to hire a consultant to help you prepare the plan. Even if you turn to outside help, you should be completely familiar with every detail of your plan, because at some point you will have to meet with prospective lenders. Your knowledge and understanding of the plan will influence their decision.

One final word of advice: Before submitting your plan, have at least two other individuals review it. They should understand lending and investments and be able to give you constructive suggestions. That way, if your plan needs work, you can revise it before you submit it to lenders.

3. FINANCE FOR THE LONG TERM

"The most hazardous period for a new business is the first two years due to insufficient working capital," says Bernard Schnitzer, a counselor at SCORE. Many over-eager entrepreneurs open their doors without the necessary funds to keep the business going until the profits begin to roll in. They have only enough for a couple of months' rent, some fixtures and minimum inventory.

Before you open for business, it is critical to plan how much cash you will need. That amount depends on the type of business you are opening (sales and manufacturing need more; service businesses need less) and the type of person you are.

You also should ask yourself what you need the money for; how much you need; does the amount allow for unexpected developments; how and when you will repay the money; can you afford the cost of borrowing; and what is the outlook for business in general and your business in particular? By carefully planning your financial projections, you can avoid some of the financial crises that arise from a future shortage of funds. Hinden/Owen/Engelke, specialists in financing for small businesses, recommend the following "Ten Commandments of Smart Corporate Financing";

- Stay in contact with several lenders.
- Anticipate financing needs and make arrangements well ahead of opening your doors.
- Borrow as much as you can.
- Get all commitments in writing.
- Never assume silence is approval of a loan request.
- Don't make the interest rate the major consideration in evaluating financing.
- Don't surrender or assume that if one lender says "no," they all will.
- Watch for turning points in the operation of your company.
- Tight money doesn't mean no money.
- Don't limit your sources just to banks.

There are a number of sources of financing available to the small business owner (besides family and friends): private sector financing-- banks, savings and loans and other financial services institutions; government financing--the U.S. Small Business Administration and local community groups like the Small Business Investment Companies and the Minority Enterprise Small Business Investment Companies; and venture capitalists--wealthy individuals and firms who make their money as investors.

Before you fill out your loan request--no matter who the prospective lender is--find out what documentation you will need. For example, banks and the U.S. Small Business Administration require a resume of the applicant's education and work experience with emphasis on experience related to the particular business; a personal financial statement detailing net worth and income tax statements for at least the two previous years; the aforementioned business plan; and credit references. Finally, borrow carefully. "Having financing is critical at the growth phases," says one small business owner; "But be careful not to overextend yourself."

4. BALANCE YOUR BOOKS

To begin with, your books should include accurate and thorough state- ments of sales and operating results, fixed and variable costs, profit and loss, inventory levels, and credit and collection totals; tax returns and reports to regulatory agencies; and comparisons of current data with prior years' operating results and budgeted goals.

In addition, you should also track daily cash receipts and credit sales, expenses and inventory received, plus employee expenses including pay and deductions.

A good recordkeeping system should be easy to understand, reliable, accurate, consistent and designed to provide information on a timely basis.

There are two methods of accounting: cash and accrual. Using the cash method, income is recorded when the cash is received and expenses are recorded when paid. With accrual accounting, you record all income and expenses whether paid or not. Both cash and credit transactions are recorded when paid. Whether you use the cash or accrual method, both require four basic types of records:

- Sales records;
- Cash records;
- Cash disbursements;
- Accounts receivable.

To determine which system is best for you, consult with a financial advisor or public accountant.

5. PRACTICE GOOD MANAGEMENT

Management of a business encompasses a number of activities: planning, organizing, controlling, directing and communicating. Most business failures aren't a result of bad economic times; rather, they stem from improper management. The cardinal rule of small business management is to know exactly where you stand at all times.

Some of the more common mistakes managers make include:

- Hiring the wrong people;
- Inadequate employee training;
- Trying to do too much;
- Misuse of time;
- Absentee ownership.

In a big company, a bad month in one division can be offset by other divisions. In a small company, there's nothing else to fall back on, so a bad week can be fatal. Managing a small company means staying on top of the business so that you can react instantly and decisively when problems arise.

Bad management isn't limited to poor economic times; it can happen even during the best of times. Some management consultants say their experiences with small businesses confirm that over expanding, hiring weak personnel and being over confident are frequent management mistakes that occur when times are good.

Along with those is the inability to handle growth. "If the business is successful, it takes on a life of its own," says one owner. You become a "situation manager" rather than just a people or business manager. Suddenly, you are balancing opportunities, investments and energy.

Whether the times are good or bad, the successful manager is the one who remains calm and confident and who turns adversity into opportunity.

And as a successful manager you must also be a good leader. Many experts believe that leadership is a form of behavior: of persuading and inducing, of guiding and motivating. They believe that a well-rounded leader is a master of certain skills, creates a climate that encourages productivity and directs and controls employees' activities.

Very often, leadership style reflects an individual's personality. However, you should keep in mind that what works well with one group or individual; may not work as well with the next. As a result, good leadership requires a flexible approach, one that is based on the people involved and the situation at hand.

Advises one small business owner, "Surround yourself with competent people, then train them and learn to delegate." And when you do delegate, keep the following tips in mind:

- Don't constantly check up on employees while they're working;
- Believe what they say;
- Avoid having to know every single detail at all times; and
- Be sure you know enough to stay on top of things.

"Delegation is an issue of trust," says another owner. "But it cuts both ways. You can't get someone to trust you unless you trust them, too."

6. KNOW YOUR MARKET

"You're in business to serve a customer need," says Derek Hansen, founder of American Capital Access. "If you're not sensitive to customers, don't know who your customers are, how to reach them and, most of all, what will convince them to buy your product or service, get help."

Before developing your plan, you must do your homework. Effective marketing, planning and promotion begins with factual information about the marketplace. Visit your local library, talk to customers, study the advertising of other businesses in your community (including that of your competition) and consult with any related industry associations.

Once you have all the necessary information, it is time to put your plan down on paper. It should accomplish the following:

1. Define your business

2. Define your customers

3. Define your plan and budget

- Methods of testing your marketing ideas;
- Methods for measuring results of your marketing campaign;
- The marketing tool you can implement immediately.

The final component in your marketing plan should be your overall promotional objectives: to communicate your message, create an awareness of your product or service, motivate customers to buy and increase sales. Objectives make it easier to design an effective campaign and help you keep that campaign on the right track. Plus, once you have defined your objectives, it is easier to choose the method that will be most effective.

The essential idea is targeted marketing--making sure your message reaches the people you want to persuade. Today's marketplace is too fragmented and diffused to reach everyone without the expenditure of vast sums of money. This makes the formulation of a specific customer profile all the more important. "Before, we always tried to get everybody and their brother to buy from us. Need-less to say, that approach didn't work. Then we started a marketing plan that targeted a specific geographic area." says one long-time business owner, "and it brought in all the business we hope for."

7. DELIVER QUALITY

"Understand your weaknesses and strengths, your product and the market," urges Paul Kirschner, Regional Representative, SCORE.

Above all, never underestimate the importance of your customers. Design your product or service based on what they want. Develop your own standards for quality and constantly reinforce those values. Once quality slips, customers notice and the competition inches ever closer.

"Supplying your customers with a desired, needed and valued product or service will help ensure their satisfaction and your repeat business and success," says the owner of a television and radio dealership. "In short, always give clients what they want and need."

Still other owners say, "Never lower your standards. Ask for feedback and make it a way of life. Build it into everything you do so you know if your quality is as good as it should be."

To measure how well you are doing, it is critical that you keep an eye on the competition, consultants say. This means matching what the competition delivers and then bettering it to hold your ground.

Asking the question, "Are we doing a good job; the best that we can?" is key to the success of your business. By doing that you will please your customers and you will set your business apart from competition.

8. HIRE THE RIGHT PEOPLE

"One of the toughest parts of starting my furniture sales business," says one owner, "was finding good, trustworthy employees. The other tough part was managing them. Although good employees are one of a company's greatest assets, all employees need to be motivated."

The hiring process should not be haphazard. Before you begin, you need to define the job, the experience or education level required and what you are willing to pay--salary and benefits. If you haven't formulated a personnel policy, now is the time. You need to consider the number of hours to be worked each week, the number of days per week, holiday work and the time and method for overtime pay; fringe benefits; vacation and sick leave; time off for personal needs; training; retirement; a grievance procedure; performance review and promotion; and termination.

Employment and training procedures should be established so that you have a better chance of hiring the right employee for the right job and that you hire employees to fill in on those areas where you may be weak.

There are a number of sources to which you can turn for job candidates: classified advertising, employment agencies, temporary agencies, state employment agencies, unions, schools, community organizations, former employees or friends and family.

Rather than making your selection based on intuition, you need to follow a process that enables you to determine the candidate's worthiness for the position. Review the candidate's resume, application and work samples; test the applicant if appropriate for the position; interview the candidate; and check his or her work references.

When interviewing, don't make the common mistake of asking what the candidate has done; rather, ask how the candidate did it. Interview the candidate, not his or her resume. Moreover, don't neglect to assess three essential factors you won't find on anyone's resume: intellect, interpersonal skills and motivation level.

When interviewing, it is also important to know the laws related to job discrimination. According to one expert, there are two simple rules to test whether or not to ask a question: (1) Is it job related? If it isn't, don't ask. (2) Is the question presented only to a specific type of candidate? If it is, don't ask.

When it comes time for the hiring decision, undoubtedly your sense of people will come into play; your ability to separate "good" employees from "bad" one. However, a few words of warning: All too often, consultants say, employers hire people they believe will turn around, only to find a difficult battle on their hands. Time is too precious to waste on anyone who cannot contribute 100 percent.

Once you have carefully selected your new employee, it is important to create a good working relationship. Open-mindedness, patience, communication skills, willingness to listen and other human relations skills play a vital role in the development of such relationships. "Be aware of individual personalities," says Ed Lohlein, owner of Budget Copy. "We maintain an 'open door' policy by talking to our employees as human beings."

Says another owner, "Hiring good people, developing appropriate relationships and making them part of the operation are the keys to a successful business.

And although you have been careful to hire the right person for the job and are working hard to form rewarding relationships with your employees, you can still be subject to problems. That is the nature of business. Very often the problems you experience mirror those of society in general.

Currently, employers are faced with the problem of drug abuse and drug testing and with adhering to the new regulations set down by the 1986 immigration law.

Substance abuse costs American business about $100 billion a year in lost production, according to the federal government. In 1980, a government-sponsored study revealed that about 10 percent of the nation's workforce was impaired by alcohol abuse.

While many large businesses have set up substance abuse programs, such programs are too expensive for the small business owner. One consultant recommends writing out a policy statement concerning drug and alcohol use at work and coming to work in a drug or alcohol-induced state. He advises that the policy should state that the use of drugs or alcohol on the job are unacceptable and grounds for disciplinary action, including dismissal.

Another consultant suggests that the small business owner investigate outside employee assistance programs as a way of offering help to troubled employees at a relatively low cost. If no such provider is available in the area, you may want to join with other local companies to create an employee assistance program together.

The other major societal issue--hiring illegal immigrants--can have significant impact on the operation of a small business. Under the Immigration Reform and Control Act of 1986, employers must hire only U.S. citizens and aliens authorized to work in the United States. Violators can face stiff fines. The Immigration and Naturalization Service (INS) requires that you ask each new person hired the following questions: Are you a U.S. citizen? Or, are you an alien lawfully authorized to work in the United States? Their answers should be noted on your employment records.

The employer must attest under penalty of perjury--on a form provided by the U.S. Attorney General--that he or she has verified by examining the documents specified in the law, that each new person hired is authorized to work in this country.

Documents that satisfy the verification requirements include a U.S. passport, certificate of U.S. citizenship, certificate of naturalization and certain foreign pass-ports and resident alien cards. Documents such as a Social Security card or birth certificate also are acceptable if examined together with approved identification such as a driver's license.

Employers must keep the verification forms on file for three years from the date of hire or for one year following the employee's separation from service, whichever is later.

For further information on the new law, the INS has produced a "Handbook for Employers," document number M274. Contact your local INS office to receive a copy.

9. CHOOSE THE RIGHT LOCATION

If your business is retail, you will want a location that provides a lot of local traffic, both pedestrian and vehicular. You will also want to consider parking availability, public transportation, the compatibility of neighboring businesses and the building itself. If you are renting, try to talk to former tenants and ask why they moved. Talk to other shopkeepers in the area and learn as much as you can about the area and its customers. Be careful if you see several unoccupied buildings for rent. It could mean the area is undergoing an economic downturn, or a redevelopment renaissance.

Manufacturing and service businesses have different needs. They must be close to their suppliers and customers, accessible to transportation, in compliance with local zoning regulations and have space for future expansion.

No matter what business you are in, there are certain basic considerations that must be taken into account. To begin with, the style, construction and overall exterior appearance of your building play a vital role in the development of your company image. And inside, be sure your layout is open and simple and facilitates the flow of people, supplies and merchandise. In addition, don't neglect to check the plumbing, air conditioning and sanitary facilities and whether the building meets fire and earthquake codes.

Before you sign a lease, you should have your lawyer and insurance agent review it. Both you and they will want to know:

- How the rent is determined;
- Is the rent high or low compared to other rents in the area;
- Who is responsible for alterations--the tenant or landlord;
- Who owns any improvements made by the tenant;
- The amount of insurance held by the landlord and the degree of coverage required of the tenant;
- Lease renewal provisions;
- The tenant's right to sublet;
- Options for expansion;
- Property use restrictions (zoning).

A final consideration in choosing a location is whether you should rent or buy the facility you are considering. Your decision should be based on these factors:

- Are your requirements going to change rapidly over the next few years? If they are, you should probably think about renting.
- Is capital in short supply? Can you use your available money better if it is not tied up in a building? What return can you expect from your funds if they are invested elsewhere? If your capital is tight, renting may be preferable.
- Can you secure a favorable lease from the building owner with an option to purchase?
- How will renting or purchasing affect your financial picture?
- Will the building be easy to resell?
- What kind of tax forgiveness and other kinds of assistance are available from the state or the local community?

Before embarking on a search for the perfect location, you should outline your needs, present and future, and then find a site that meets those needs. If you need assistance, a business real estate broker can often be helpful in finding the right location. In addition, your local chamber of commerce can answer any questions you may have about the community.

10. DON'T BE AFRAID TO ASK FOR HELP

The problem that faces many owners of new small businesses is how to afford professional help at the point when they will probably need it the most: usually when it is most difficult to pay for. But professional advice need not be expensive. Businesses can find assistance through local attorneys, consultants, accountants, bankers, the U.S. Small Business Administration, the Service Corps of Retired Executives, chambers of commerce, trade associations, and business libraries, to name a few.

Most important, consultants say, is knowing what kind of help you need, and then getting it early enough.

"It's a shame more small businesses don't tap into the resources of a professional to help them realize their full potential," notes Howard Cohen, economist and chartered accountant in Tiburon, CA.
Urges Dale Morseman, owner of Industrial Graphic Arts in Concord, CA, "Gather advice from all available sources, particularly business and trade associations. When you have questions or problems outside your area of expertise, seek professional help."

The owner of a small business consulting firm recommends the appointment of a board of directors with whom you meet regularly. Your board should be made up of experienced business professionals who can offer practical advice and help you solve the kinds of problems new owners face.

You needn't only turn to professional consultants for assistance. Newspapers, trade publications, specialty newsletters and magazines, and business libraries can point you toward the answers you need. Moreover, your local chamber of commerce and many financial institutions publish how- to books for a small fee or just for the asking.

The resources don't end there. Free counseling is available through the SBA and SCORE, the volunteer organization it supports. SCORE is staffed by experts who have had successful careers as business owners, chief executives, manufacturing chiefs, bankers, economists, attorneys, engineers, and sales and marketing managers. In addition to one-on-one counseling, they run "Entrepreneur Training" workshops and publish a number of practical guides and handbooks. SCORE counselors are experts who appreciate what small business means and who want to share their experiences and knowledge with any small business owner who needs help.

Do you have what it takes?

Starting a business is risky at best; but your chances of making it will be better if you understand the problems you'll encounter and have those problems worked out before you start. The first question you need to answer is about you: do you have what it takes? Below are some questions to help you evaluate whether you do.

1. Are you a self-starter?

( ) I do things on my own. Nobody has to tell me to get going.
( ) If someone gets me started, I keep going all right.
( ) Easy does it. I don't put myself out until I have to.

2. How do you feel about other people?
( ) I like people. I can get along with just about anyone.
( ) I have plenty of friends; I don't need anyone else.
( ) Most people irritate me.

3. Can you lead others?

( ) I can get most people to go along when I start something.
( ) I can give the orders if someone tells me what we should do
. ( ) I let someone else get things moving; then I go along if I feel like it.

4. Can you take responsibility?

( ) I like to take charge of things and see them through.
( ) I'll take over if I have to, but I'd rather let someone else be responsible.
( ) There's always some eager beaver around wanting to show how smart he is. I say let him.

5. How good an organizer are you?

( ) I like to have a plan before I start. I'm usually the one to get things lined up when the group wants to do something.
( ) I do all right unless things get too confused; then I quit.
( ) I get all set and then something comes along and presents too many problems. So I just take things as they come.

6. How good a worker are you?

( ) I can keep going as long as I need to. I don't mind working hard for something I want.
( ) I'll work hard for a while, but when I've had enough, that's it.
( ) I can't see that hard work gets you anywhere.

7. Can you make decisions?

( ) I can make up my mind in a hurry if I have to. It usually turns out okay, too.
( ) I can if I have plenty of time. If I have to make up my mind fast, I think later that I should have decided the other way.
( ) I don't like to be the one to decide things.

8. Can people trust what you say?

( ) You bet they can. I don't say things I don't mean.
( ) I try to be on the level most of the time, but sometimes I just say what is easiest.
( ) Why bother if the other person doesn't know the difference?

9. Can you stick with it?

( ) If I make up my mind to do something, I don't let anything stop me.
( ) I usually finish what I start-if it goes well.
( ) If it doesn't go right immediately, I quit. Why beat my brains out?

10. How good is your health?

( ) I never run down!
( ) I have enough energy for most things I want to do.
( ) I run out of energy sooner than most of my friends.

Now total the number of checks you have next to the first, second and third answers. If most of your checks are beside the first answers, you probably have what it takes to run a business. If not, you're likely to have more trouble than you can handle by yourself. Better find a partner who is strong on the points on which you are weak. If many of your checks are next to third answers, even a good partner will not be able to shore you up.

Business Plan Checklist

A well prepared business plan serves several purposes:

- It helps the owner of a new business determine the feasibility and desirability of pursuing the steps necessary to start a business.
- It is an important sales tool for raising capital from outside investors.
- It forms the basis of a more detailed operational plan and becomes an important management tool for monitoring the growth of the firm and charting future directions.

Following is a general approach that you can use as a foundation. However, you should tailor your plan to meet the specific circumstances of your business, emphasizing its strengths and addressing the potential problems and challenges to be faced.

Summary
The summary should concisely describe the key elements of the business plan. For the firm seeking financing, the summary should convince the lender or venture capitalist that it is worthwhile to review the plan in detail. The summary should briefly cover at least the following:

- Name of the business;
- Business location and floor plan description;
- Discussion of the product, market and competition;
- Expertise of the management team;
- Summary of financial projections;
- Amount of financial assistance requested (if applicable);
- Form of and purpose for the financial assistance (if applicable);
- Purpose for undertaking the project (if financial assistance is sought);
- Business goals.

The Company

This section provides background information on the company and usually includes:

* A general description of the business, including the product or service;

* Historical development of the business, including:

-Name date and place (state) of formation;
-Legal structure (proprietorship, partnership, corporation);
-Significant changes, including dates, in ownership, structure, new products or lines, acquisitions;
-Subsidiaries and degree of ownership, including minority interests;
-Principals and the roles they played in the formation of the company.

The Product or Service

Describe the present or planned product or service lines, including:

* Relative importance of each product or service including sales projections, if possible;
* Product evaluation (use, quality, performance);
* Comparison to competitors' products or services and competitive advantages over other producers;
* Demand for product or service and factors affecting demand other than price.

The Project

If financing is sought for a specific project, describe the project, the purpose for which it is undertaken, its cost and the amount, form and use of the financial assistance.

Management

* Organizational chart;
* Key individuals (include supervisory personnel with special value to the organization);

-Responsibilities;
-Personnel resumes (describing skills and experience as they relate to activities of the business);
-Present salaries (include other compensation such as stock options, bonuses);
-Planned staff additions.

* Other employees:

-Number of employees at year end, total payroll expenses for each of previous five years (if applicable) broken down by wages, benefits;
-Method of compensation;
-Departmental/divisional breakdown of work force.
* Planned staff additions.

Ownership

* Names, addresses, business affiliations of principal holders of subject's common stock and other types of equity securities (include details on holdings);
* Degree to which principal holders are involved in management;
* Principal non-management holders;
* Names of board of directors, areas of expertise and role of board when business is operational;
* Amount of stock currently authorized and issued.

Marketing Strategy/Market Analysis

* Description of the industry. Include:

-Current description of industry;
-Industry outlook;
-Principal markets (commercial/industrial, consumer, government, international);
-Industry size--current as well as anticipated in the next 10 years (explain sources of projection);
-Major characteristics of the industry. Effects of major social, economic, technological or regulatory trends on the industry.

* Description of major customers. Include:

-Names, locations, products or services sold to each;
-Percentage of annual sales volume for each customer over previous five years (if applicable);
-Duration and condition of contracts in place.

* Description of market and its major segments. Include:

-Principal market participants and their performance;
-Target market;
-Customer requirements and ways for filling those requirements;
-Buying habits of customers and impact on customers using your product or service.

* Description of competition: Companies with which your business competes and how your business compares with these companies. This section is a more detailed narrative than the maintained in the description of the product or service, above.

* Description of prospective customers. Include reaction to your firm and any of its products or services they have seen or tested.

* Description of firm's marketing activities. Include:

-Overall marketing strategy;
-Pricing policy;
-Method of selling, distributing and servicing the product;
-Geographic penetration, field/product support, advertising, public relations and promotion and priorities among these activities.

* Description of selling activities. Include method for identifying prospective customers and how and in what order you will contact the relevant decision-makers. Also describe your sales effort--sales channels and terms, number of salespersons, number of sales contacts, anticipated time, initial order size--and estimated sales and market share.

Technology

* Describe technical status of your product--idea stage, development stage, prototype--and the relevant activities, milestones and other steps necessary to bring the product into production.

* Present patent or copyright position (if applicable). Include how much is patented and how much can be patented (how comprehensive and effective the patents or copyrights will be). Include a list of patents, copyrights, licenses or statements of proprietary interest in the product or product line.

* Describe new technologies that may become practical in the next five years that may affect the product.

* Describe new products (derived from first generation products) the firm plans to develop to meet changing needs.

* Describe regulatory or approved requirements and status, and discuss any other technical and legal considerations that may be relevant to the technological development of the product.

* Describe research and development efforts and future plans for research and development.

Production/Operating Plan

* Explain how the firm will perform production or delivery of service. Describe in terms of:
* Physical facilities-owned or leased, size and location, expansion capabilities, types and quantities of equipment needed. Include a facilities plan and description of planned capital improvements (if any) and time-table for those improvements.

* Suppliers: name and location, length of lead time required, usual terms of purchase, contracts (amounts, duration and condition) and subcontractors.

* Labor supply (current and planned): number of employees, unionization, stability (seasonal or cyclical) and fringe benefits.

* Technologies/skills required to develop and manufacture the products.

* Cost breakdown for materials, labor and manufacturing overhead for each product, plus cost versus volume curves for each product or service.

* Manufacturing process.

* Describe production or operating advantages of the firm; discuss whether they are expected to continue.

* Specify standard product costs at different volume levels.

* Present a schedule of work for the next one to two years.

Financial

* Auditor: name, address;
* Legal counsel: name, address;
* Banker: name, location, contact officer;
* Controls: cost system used and budgets used;
* Describe cash requirements, now and over next five years, and how these funds will be used;
* Amount to be raised from debt and amount from equity;
* Plans to "go public"--relate this to future value and liquidity of investments;
* Financial statements and projections for next five years:
* Profit and loss of income statements by month until break even, and then by quarter;
* Balance sheets as of the end of each year;
* Cash budgets and cash flow projections;
* Capital budgets for equipment and other capital acquisitions;
* Manufacturing/shipping plan.

If financing is sought, most lenders and venture capitalists will require:
* A funding request indicating the desired financing, capitalization, use of funds and future financing;
* Financial statements for the past three years, if applicable;
* Current financial statements;
* Monthly cash flow financial projection including the proposed financing, for two years;
* Projected balance sheets, income statement and statement of changes in financial position for two years including, the proposed financing.

How Much Money Do You Need?

To help you estimate the amount of financing you will need to get your business off the ground, use the following checklist. For each item, estimate a monthly amount needed.

Monthly Expenses:
Salary of owner-manager (if applicable)
All other salaries and wages
Rent
Advertising
Delivery expense
Supplies
Telephone
Utilities
Insurance
Taxes, including Social Security
Interest
Maintenance
Legal and other professional fees
Miscellaneous

One-Time Start-Up Costs:

Fixtures and equipment
Decorating and remodeling
Installation of fixtures and equipment
Starting inventory
Deposits with public utilities
Legal and other professional fees
Licenses and permits
Advertising and promotion for opening
Accounts receivable
Cash
Other


TOTAL

Your total will depend on how many months of preparation you want to allow for.

Small Business Financial Status Checklist

What an owner/manager should know:
Daily

1. Cash on hand.
2. Bank balance (keep business and personal funds separate).
3. Daily summary of sales and cash receipts.
4. Errors corrected in recording collections on accounts.
5. Record of all monies paid out, by cash or check.


Weekly

1. Accounts receivable (take action on slow payers).
2. Accounts payable (take advantage of discounts).
3. Payroll (records should include name and address of employee, Social Security number, number of exemptions, date ending the pay period, hours worked, rate of pay, total wages, deductions, net pay, check number).
4. Taxes and reports to state and federal government (sales, withholding, Social Security).

Monthly

1. That all journal entries are classified according to appropriate account numbers (these should be generally accepted and standardized for both income and expense) and posted to general ledger.

2. That a profit and loss statement for the month is available within a reasonable time, usually 10 to 15 days following the close of the month. This shows the income for the business for the month, the expense incurred in obtaining the income, and the profit or loss resulting. From this, take action to eliminate future loss (adjust mark-up? reduce overhead expense? pilferage? incorrect tax reporting? failure to take advantage of cash discounts?).

3. That a balance sheet accompanies the profit and loss statement. This shows assets (what the business has), liabilities (what the business owes), and the investment of the owner.

4. The bank statement is reconciles. (That is, the owner's books are in agreement with the bank's record of the cash balance).

5. The petty cash account is in balance. (The actual cash in the petty cash box plus the total of the paid out slips that have not been charged to expense should total the amount set aside as petty cash.

6. That all federal tax deposits, withheld income and FICA taxes (form 501) and state taxes are made.

7. That accounts receivable are dated, i.e., 30, 60, 90 days, etc., past due. (Work all bad and slow accounts.)

8. That inventory control is worked to remove dead stock and order new stock. (What moves slowly? Reduce. What moves quickly? Increase.)

Common Communication Traps

Open communication is critical if you are going to manage well. Following is a partial list of communication roadblocks, examples of how they are used and the problem-solving detours that can result.

1. Ordering: "You must . . ." "You have to . . ."--Make an employee feel resentful of the manager's power. Put down or frustrated, the employee responds with anger, refusal or dissent.

2. Warning: "You'd better . . ." "If you don't, then . . ."--Place a threat on the future and make the employee feel humiliated or embarrassed.

3. Moralizing: "You should . . ." "It's your responsibility . . ."--Attempt to make employee feel guilty and communicate lack of trust in his or her judgment.

4. Advising: "What I would do is . . ." "It would be best for you if . . ."--Imply superiority and can make a person feel inadequate and encourage dependency. If the manager's suggestion turns out to be wrong, the employee can duck responsibility.

5. Persuading with logic: "Here's why you are wrong . . ." "The facts are . . ." -- Label another person as "wrong" and foster defensiveness as well as feelings of inadequacy.

6. Judging: "You are acting foolishly . . ." "You aren't thinking straight . . ."--Make an employee feel incompetent and stupid and if used often enough may become incorporated into the employee's self-image. A defensive reaction in the future may be to decide not to tell a manager about a problem.

Serve Your Customers Well

Quality doesn't only apply to merchandise. It also means good service and caring about your customers wants and needs. Here are five specific steps for taking better care of your customers.

1. Conduct your own survey. Profit from the ideas, suggestions and complaints of your present and former customers. Solicit their ideas for new products and better service.

2. Meet your customers in person. if your business has grown to the point where you spend most of your time in the office or traveling, take the time to talk to the customers who buy and browse. Observe and ask questions. Think like a customer.

3. Check telephone handling. Bad handling can undermine efforts to build a profitable enterprise. Rules of good handling, such as prompt answering and a cheerful attitude of helpfulness, are of critical importance. Check on telephone manners periodically by having someone whose voice is unfamiliar play the role of a customer, perhaps a difficult one.

4. Make it a team. Continually drive home the crucial message that everyone is part of the success machine. Build customer consciousness throughout your organization. When you hold group meetings, invite ideas from everyone and discuss those ideas.

5. Take advantage of after-hours influence. This is the time when you build, in an informal way, the friendly feeling that draws people to you and your business. Turn friends into customers and reinforce customer loyalty. Take advantage of the relaxed atmosphere of a golf game or cocktail party or just a neighborly chat.

Follow Fair Employment Practices

Current state and federal human rights legislation concerning discrimination in hiring places burden of proof on the employer. In other words, if questions asked in a pre-employment interview are perceived as discriminatory, it is up to the employer to prove they are not. Following are some examples of questions that are acceptable and some that may lead to charges of discrimination.

Acceptable to Ask

Why are you interested in this job?
Describe your education.
What experience have you had that qualifies you for this job?
Do you have other abilities that will help you perform the job?
Do you have all the necessary licenses and certification?
Are you willing to travel? (Depending on your job relatedness)
What, if any, are your concerns about the job?
What are your salary expectations?
May we inquire of your present employer?

You may also discuss job duties and responsibilities, the organization, its programs and achievements, career and growth potential, opportunities for advancement and facilities available.

Unacceptable Questions

How old are you or what is your date of birth?
Have you ever been arrested or convicted of a crime?
How many children do you have? What are their ages? Have you made child care arrangements? What is your national origin?
What is your credit record?
What is your maiden name?
What is your marital status?
What is your spouse's name or work?
Do you have any handicaps?

Evaluating Prospective Sites

When choosing a location, a method for evaluating each potential site is crucial. By using some form of scoresheet, you will be able to carefully consider a site's strengths and weaknesses and eliminate the factors that may be equal in all sites. In addition, as you make your tally, be aware that some factors may be more important because of your line of business. Be sure you assign the proper weight to those factors.

Below is a basic checklist to help you rate each site. First, read through the criteria and weigh them on a scale of 1 to 5 according to their importance to the success of your business (1 is low, 5 is high). For each site you are evaluating, make a copy of this list with the weights filled in. Go through each criterion again and grade it on a scale of 1 to 10 based on how well the site you are rating meets the need. Multiply the grade times the weight for your site's points on each factor. Add up the points to get a total score for the site. Repeat this process for each site and compare the total scores. The highest one will be the site that best meets your most important requirements. Happy hunting!

Factors

1. Centrally located to my market
2. Raw materials readily available
3. Quantity of available labor
4. Transportation availability
5. Vehicular and pedestrian traffic (important in retail and small service operations)
6. Parking availability
7. Labor rates of pay/estimated productivity
8. Adequacy of utilities (sewer, water, power, gas)
9. Local business climate
10. Provision for future expansion
11. Tax burden
12. Topography of site (slop, foundation)
13. Quality of police and fire protection
14. Housing availability for employees
15. Environmental factors (community atmosphere)
16. Estimate of quality of this site in future
17. Estimate of this site in relation to that of my major competitor


Total Score