Frequently asked questions

Q. Is an economic downturn any time to start a business?

The economy has climbed to historic highs and undergone unprecedented slumps. Those ups and downs have created a business environment of great uncertainty. Especially in an economic downturn, a reasonable question to ask is, “Is this a good time to plan a new venture?”

In fact, it may be one of the best times. Any business that competes on price can expect to fare well during slow economic times. High-end restaurants may suffer, for example, but pizza chains flourish. A downturn is precisely the right time to begin planning for when the economy turns around. Career consulting firms that recruit top-notch talent when the economy is slow expects sizzling business when hiring picks up.

Q. What kind of person makes a successful entrepreneur?

Research of successful entrepreneurs has documented that successful small business people have certain common characteristics. This checklist cannot predict success, but it can give you an idea of whether you will have a head start or a handicap with which to work.

How do you measure up? Ask yourself these questions:

Can I persevere through tough times?

Do I have a strong desire to be my own boss?

Do the judgments I make in life regularly turn out well?

Do I have an ability to conceptualize the whole of a business?

Do I possess the high level of energy that is sustainable over long hours?

Do I have significant specialized business experience?

While not every successful business owner starts with a “yes” answer to all these questions, three or four “no” responses and undecided answers should make you think twice about going at it alone right now. But, don’t be discouraged. Seek extra training and support, and enlist the help from a skilled team of business advisors such as accountants, bankers, attorneys and SCORE counselors.

Q. If I am not planning to apply for a bank loan, why do I need a business plan?

The fact that a bank or lending institution requires a well-executed business plan is a secondary consideration. The primary purpose of the business plan is to guide the owner or manager in successfully operating the business. Preparing the plan forces the writer to consider all aspects of the business and to confront any problems the plan highlights. For example, a monthly compilation of all known costs, over time, will indicate the revenue necessary to support these costs, plus a profit. This leads to the question of whether or not this revenue number is reasonable. If not, it may cast doubt on the viability of the venture itself. The business plan is a vital management tool that enables the manager to anticipate situations before they become problems—or worse yet, emergencies.

Q. What do I need to know about financial statements?

First, you need to know which financial statements are important. They are:

Balance Sheet—shows the financial conditions of your business at a point in time

Statement of Operations (Profit and Loss Statement)—shows whether you made a profit during a specific period of time

Cash Flow Statement—shows what happened to your cash position during a specific period of time

You should have a basic understanding of each of these statements. When compared with statements from prior periods, you can determine whether something is happening in your business that needs your special attention.

Your accountant can prepare these statements for you from the business data that you supply. There are also a number of computer software programs that will help you generate these statements from your input of regular transactions—such as sales, collections, purchases, payments and payroll.

 

Q. How can I obtain cash to maintain and grow my business?

Develop a positive business relationship with your bank. Seek your banker’s advice even at times where you are not seeking funds. You may find that every time you go to your bank you speak to a different loan officer, so you should know them all.When the loan officer gets a promotion, you must start all over again with another person. If you want the bank to take an interest in your business, then you have to take an interest in theirs. How?

Know your banker—Take an interest in your banker as a person. Ask your banker to hold on to your account if he or she is promoted. When you go to see your banker, have your business plan and financial papers ready. Make it easy for your banker to see what you want and why. The bank wants to minimize its risk with regard to you and your business. This is where you have to sell yourself.

Know your bank—Know and understand your bank’s annual report. Know your bank’s business direction and plan. Know the bank’s lines of authority. Get on the bank’s mailing list. It’s an easy way to keep up with bank news.

Q. How can I better market my business?

To market your business, you must define your customer. To maintain consistent sales growth, you must become knowledgeable about your market. Develop an outline of your “typical” consumer:

What exactly is your market?

Where do the consumers come from (i.e. city centers, suburbs, tourists, international)?

What are customers buying patterns?

Why should they buy from you? Factors could include convenience, price, quality, service, etc.

Should you try to appeal to a niche market segment or the entire market?

Have you missed a new customer segment or special market?

How large is the potential target market (in units or dollars)? Is it growing, stable or decreasing? What percentage of the market do you have?

Research will provide answers that are not available from your business records and a financial analysis. Conduct research through trade associations, your local chamber of commerce, libraries or even ask for the help. Pay attention to how competitors market to their customers. Perhaps, some of their marketing strategies can be adopted for your business, or you may find examples of what not to do.