Starting Your Own Business A Guide for Georgia Entrepreneurs

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

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 – business articles, start-up guideswww.entrepreneur.com – business articles, start-up guideswww.inc.com – population, migration, demographicwww.census.gov - Bureau of Labor Statistics- labor, spendingwww.bls.gov/home.htm Georgia demographicshttp:// – Georgia demographicshttp:// - demographicswww.fedstats.gov - Georgia GIShttp://ga2000.itos.uga.edu - traffic volume mapshttp:// – market research, Go to “Free Stuff” - financial statisticswww.bizstats.com – Industry reportswww.IBISworld.com 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.” Enter business type and click “NAICS Search”

Get involved with your business community! Small Business Development Centers – County Economic Development Departments Chambers, DDA’s, Networking Organizations Industry Associations Write Articles –Your industry’s publications – 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 $100 $200 $100 $200 p. 30

$200 $1760 $1000 $760 $200 $960 p. 31

$960 $200 $800 $300 $150 $100 $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

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

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Financial Feasibility Income 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!

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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)

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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 hear the 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

SBA Loans ProgramSBA Guaranted Fees Use of ProceedsMaturity & Rates Who Qualifies 7 (a) Loan (Guaranty Program) $2,000,000 Total Loan amount $1,000,000 max. guarantee 85% under $150,000 75% over $150,000 Existing & Start-up, new construction, purchase of land or buildings, purchase of equipment, fixtures, leasehold improvements, working capital, refinancing debt, inventory Depends on ability to repay; generally working capital and M&E is 5-10 yrs; real estate & construction up to 25 yrs. Must be for profit and meet SBA size standards; must show good character, credit, management and ability to repay 504 Certified Development Company Loan Limit on SBA/CDC portion of project, 40% or $1,000,000 Long-term fixed asset loans; must create or retain one job per $35,000 of debenture proceeds Up to 10 or 20 yearsFor profit businesses that do not exceed $6 million in tangible net worth and do not have average income over $2 million for past two years Community Express $5,000 to $50,0000 SBA guarantee fee is 2% of loan amt 85% guarantee Start-up and working capital 7 year term Unsecured Prime % $ $25,000 Prime +3.75% $26,000 - $50,000 Low to moderate income areas or Hub Zone

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 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 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 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: %2fhome.aspxhttps://cgov.sos.state.ga.us/Account.aspx/LogOn?ReturnUrl= %2fhome.aspx Check the federal register of names patented and trademarked – 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 (p.81) –Food Sales – Ga. Dept of Ag. (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 –

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 – (p.87) State Unemployment Insurance Tax (SUTA) –2.7% of first $8,500 of employees yearly earnings – (p.86)

Federal Compliance Issues Federal Income Taxes –Federal Tax ID Number (EIN) – Form SS4 - Can apply online; free - (p.84) Employment Issues: –FICA Insurance (S.S. & Medicare) – Form 941 -calculated based on employee’s salary - (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 EmployeeEmployer 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....

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)