How to Start
or Grow
Your Small Business
An Informative Booklet . . .
Prepared
by:
The
Small Business Center at Rowan-Cabarrus Community College (SBC) is at the
heart of small business resources in Salisbury, Concord, Kannapolis, and
surrounding communities. Whether
you want to start a small business or grow an existing business, the SBC can
help you develop a plan of action for lasting success.
The
Rowan-Cabarrus SBC is part of the Small Business Center Network (SBCN) of the
North Carolina Community College System which provides funding and support for
SBCs across the state to offer seminars and services at no cost.
The
mission of the SBC is to increase the success rate and the number of viable
small businesses in Rowan and
Cabarrus Counties. Our goals are:
·
To
provide excellence in education through professional workshops, seminars and
short courses throughout the year at the North Campus (Salisbury), Cabarrus
Business and Technology Center (CBTC--Concord), and selected sites in between.
·
To
provide a referral service to other agencies and organizations such as the
Small Business and Technology Development Center (SBTDC), SBA, SCORE, local
banks and other lending institutions.
·
To
conduct individual business counseling to small business owners and
entrepreneurs.
·
To
update small business clients on relevant small business activities,
legislation, etc.
The
Rowan-Cabarrus Community College Small Business Center (SBC) Services include:
Ø
Seminars, workshops, and courses for small business owners and
prospective owners.
Ø
Free confidential one-on-one business counseling.
Ø
Inter-agency coordination and collaboration between the SBC and chambers
of commerce, business and trade associations, economic development offices,
financial institutions, accounting and legal firms, educational consultants
and instructors, and other groups.
Ø
Information and referral center for small business owners and prospective
owners.
Ø
Customized training and development for groups of small business owners.
If you would like to know more about how RCCC’s Small Business Center might benefit you or would like to be on our mailing list, please contact our office at 704-216-3534 or visit our Web site at www.rccc.edu/sbc .
The
Rowan County Chamber of Commerce is a not-for-profit, private, community
development entity organized under the state laws of
The
- To promote and advance the
industrial, commercial, agricultural, economic, civic and social welfare
of the people of
- To encourage the growth of
existing industries and businesses while giving all proper assistance to
any new firms or individuals seeking to locate in the Rowan County area;
- To support all those
activities believed to be beneficial to the community and area and to
oppose those which might be detrimental;
- And, in general, to promote
the welfare of all area citizens, following always those policies intended
to accomplish the greatest good for the greatest number.
Any firm, individual, association, corporation, partnership or estate
having an interest in the above mission and objectives shall be eligible to
apply for membership in the Chamber. Membership
investments are determined by the Chamber’s Board of Directors and we
currently have about 900 members.
The government of the Rowan
County Chamber of Commerce is vested in a 21-member Board of Directors who are
elected for three-year terms by the membership.
The Board also consists of officers as well as certain ex-officio
directors at the discretion of the Chair of the Board.
The Board adopts policies, rules and regulations for conducting the
business of the Chamber.
The Chamber’s Program of Work,
or “What We Do”, is reviewed annually and approved by the Board.
Chamber projects, activities, etc. are categorized by “Divisions”
with volunteer committees which do the bulk of Chamber work.
As stated earlier, we are membership-based and, therefore,
volunteer-driven.
The Chamber’s activities are
many and include those which develop the Small Business, Industrial and
Agriculture communities.
Federal, State and Local issues
are of extreme importance to the Chamber including legislation, regulations,
elections, transportation and other infrastructure issues.
The Chamber also is a strong
advocate of education and developing community leadership.
Finally, the Chamber is a
catalyst, partner and coalition-builder for many activities and organizations.
We also serve as the “front door” to
In its capacity as a community
development organization, the Chamber works with and is a member of both the
U.S. Chamber of Commerce and North Carolina State Chamber.
We also maintain close relationships with Federal, State and local
governments and agencies.
The Rowan County Chamber of
Commerce has for many years been the vehicle for the business community to be
a strong advocate and major force in the economic growth of this county.
It fills that role today and will continue to do so in the 21st
century.
INTRODUCTION
QUESTIONS TO ASK YOURSELF BEFORE GOING INTO BUSINESS
BUSINESS PLAN
FORMS OF BUSINESS
FINANCING
Ÿ TYPES OF LOANS
Ÿ APPLYING FOR A BUSINESS LOAN
Ÿ MISTAKES TO AVOID IN DRAFTING THE BUSINESS PLAN FOR A LOAN
Ÿ CRITERIA BANKERS USE IN MAKING A LOAN DECISION
Ÿ DO’S AND DON’TS WHEN APPLYING FOR A LOAN
ZONING AND BUILDING INSPECTION
BUSINESS LICENSES
REGISTRATION OF BUSINESS NAME
TAXES
INSURANCE
PATENTS, TRADEMARKS AND COPYRIGHTS
OCCUPATIONAL SAFETY AND HEALTH ADMINISTRATION
RESOURCE DIRECTORY
INTRODUCTION
The Rowan County Chamber of
Commerce and
For many small business owners, knowing where to get appropriate
information is a common problem. This
booklet is designed to be a guide through the preliminary stages of starting a
business and to provide information about the various regulations that will
affect you and your business activities. A
resource directory at the back of the booklet gives the addresses and
telephone numbers of additional small business resources.
QUESTIONS TO ASK YOURSELF BEFORE
GOING INTO BUSINESS
Going
into business requires certain personality traits and attitudes, particular
training and experience, and an ability to learn.
Consider these questions before you make the decision to start a
business of your own:
1.
Have you ever worked in a business similar to the one you want to
start?
2.
Do you like to make your own decisions?
3.
Are you able to take responsibility?
4.
Are you a good organizer?
5.
Are you ready to put in the long hours that might be necessary?
6.
Are you prepared to stick with it through the rough times?
7.
Do you have the physical stamina to handle the work load and schedule?
8.
Do you have the support of your immediate family for at least the first
year?
9.
Are you prepared to lose your savings?
10. Can
you prepare a detailed, credible business plan for the first three years?
Note: A good
strong, “yes” answer to all
of the above questions is needed if you expect to be successful in your business.
BUSINESS
PLAN
A business plan is a written document that describes how you will run
your business. There are three
main reasons for writing a business plan.
First, it will serve as a guide during the lifetime of your business
and will help to keep you on the right track.
Second, the business plan is a requirement if you are going to borrow
money. And third, the business
plan shows how the loan will improve the worth of your company.
When you write your business plan, you should include detailed
information in a particular format. You
will have a much better chance of getting a loan if you have developed a
comprehensive plan, which shows that you know what needs to be done, and which
uses realistic start-up costs.
Here is a suggested outline for your business plan:
A.
COVER
SHEET -
The title
page of your plan contains: name,
address, telephone number, etc.
B. STATEMENT OF PURPOSE- The thesis statement of your business plan.
C. TABLE OF CONTENTS - Listing of contents of your plan
D. BUSINESS SECTION- Information on your industry, in general and your business.
E. MARKETING SECTION- Information on your total market.
F.
FINANCIAL
DOCUMENTS- Records
showing past and current finances.
G.
SUPPORTING
DOCUMENTS- Documents
that back up statements and decisions made in the three main parts of your plan.
There are many resources to help you in the writing of your plan.
A wealth of information is available at your local public library.
The Small Business Administration www.sba.gov/nc
has many useful tools to aid you in preparing your plan.
Free counseling can be obtained from the RCCC Small Business Center,
SBTDC (Small Business and Technology Development Center), and SCORE (Service
Corps of Retired Executives). You
may also attend classes and workshops through RCCC Small Business Center.
To find out more about these services, call (704) 216-3534 or visit www.rccc.
FORMS
OF BUSINESS
Before opening a business of your own, you must choose the legal
structure which will best suit your needs and those of your business.
There are basically three forms of business organization: the sole
proprietorship, the partnership, and the corporation.
A SOLE PROPRIETORSHIP
is owned and operated by one person. This
is the simplest, least expensive business structure, and many who are just
starting a business choose this form until it becomes practical to enter into
a partnership or to incorporate.
A PARTNERSHIP is an
association of two or more persons to carry on as co-owners of a business.
This type of business allows for combining of capital, expertise, and
responsibilities.
A LIMITED LIABILITY COMPANY
is a new
form of business legal structure. It is a hybrid entity that allows owners the
protection from personal liability provided to the corporate structure and the
flexible flow-through taxation of the partnership.
A CORPORATION is a
distinct legal entity, separate from the persons who own it.
It is formed by the authority of the state government and is owned by
shareholders who buy shares of stock. Operating
as a corporation allows for capital growth and some reduction in liability.
Each form has its’ advantages and disadvantages.
The one you should use depends on your circumstances, including the
following: your financial
condition, the type of business you are entering, the number of employees, the
risk involved, and your tax situation.
See your lawyer or tax attorney for help.
CONTACT: North
Carolina Secretary of State
301 West Jones Street
Raleigh, NC 27603
(919) 733-0641 or (800) 228-8443
Website: www.sosnc.com
FINANCING
After you have made the decision to start a business and have prepared
a business plan to determine the amount of money need, it
will probably be necessary for you to obtain outside financing.
Your loan request should include these basics:
1.
A loan request summary, including the name of the borrower, the
purpose, the amount you need to borrow, the terms, the collateral, and the
guarantors.
2.
A two or three-page description of the business.
3.
The education, experience and management capabilities of the owners and
key management.
4.
A personal financial statement on all company owners.
5.
A list of all items serving as collateral for the loan.
6.
A list of the proposed uses for the borrowed funds.
7.
A line item list of how much is needed to start the business (including
borrowed funds).
8.
A list of all the sources of funds that will be used to start the
business (including the borrowed funds).
9.
A projected cash flow statement for two years, and beginning ending
balance sheet for two years.
TYPES
OF LOANS
TERM
LOANS:
A
term loan refers to any loan with a maturity of greater than one year, a
monthly payment amount paid out of the firm’s excess cash flow.
The amount of money available for debt repayment can be determined by
projecting future cash flow for a two to five year period.
Term loans may be made to qualifying businesses for many different
reasons, the most common being:
·
The
purchase, expansion or modernization of facilities, equipment, etc.;
·
The
refinancing of present debt; or
·
To
replenish working capital depleted by previous expansion.
SEASONAL
LINE OF CREDIT:
A
true seasonal line of credit is used to finance short term, cash shortages in
the normal course of business. There
should be a direct relationship between fluctuations of inventory and/or
receivables and the amount of borrowing. In
order to determine the size of the line of credit, you will need to provide
the bank monthly or quarterly financial statements and any other information
considered valuable in evaluating seasonal trends.
Pay drawn on the seasonal line should occur at the low
point in the business cycle (when the amount of inventory and
receivables are at their lowest level and cash is available).
NON-SEASONAL
LINE OF CREDIT:
In
some special cases borrowing
under a credit for other than seasonal needs is acceptable if the need is
short-term, recurrent in nature, and if there is a reliable source of
repayment. Normally, this type of
lending is limited to a few special types of business operations such as
finance companies, real estate mortgage warehousing, large construction
companies and utility companies. There
is usually more risk involved in non-seasonal lines, in that they are not
self-liquidating in nature. Repayment
is dependent on the firm’s ability to generate adequate cash flow and/or
acquire substitute forms of debt. Consequently,
the general financial strength of this type of borrower must be exceptionally
strong.
REVOLVING
LINE:
Under
some circumstances, a customer can best be served by a revolving credit
agreement, which permits the borrower to borrow against a predetermined
maximum over a stated period of time. Borrowings
may fluctuate up and down; depending on the customer’s need for funds, but
generally will lead to an eventual funding of the debt at the maturity of the
revolving credit agreement. A
revolving line of credit agreement is best suited for situations in which the
borrower is expanding and needs interim funds for working capital, fixed asset
expenditures, or other longer term needs until the expansion is complete.
The borrowing associated with these various expenditures are rolled
into some form of long-term debt.
APPLYING FOR A BUSINESS LOAN
The
following steps should be taken to apply for a business loan:
1.
Prepare
a business plan.
2. Target one to three local banks and complete their application forms, including a financial statement for all owners of 20% or more of the business.
EXISTING BUSINESSES ALSO INCLUDE:
3.
Profit
and Loss (Earnings or Income) Statement and Balance Sheets for the last
THREE years. If not available then
use business tax returns. Financial
statements should be current (no older than ninety days).
4.
A
list of all existing business debts. For
all loans show original amount of each loan, current balance of each loan,
monthly payment on each loan, maturity date and what collateral is pledged to
each loan.
START-UPS SHOULD ALSO INCLUDE:
5.
A
line-item list of how much is needed to start the business (including the
borrowed funds).
6.
A
list of all sources of start-up funds (including any borrowed funds).
7.
A
projected Profit and Loss statement for the first year of operation.
WHEN YOU HAVE COMPLETED THIS INFORMATION:
8.
If
you would like to have your package reviewed, you may contact either the Small
Business Center (SBC) at Rowan-Cabarrus Community College or the Small
Business Technology Development Center (SBTDC) at the University of North
Carolina Charlotte for an appointment.
9.
Set
up an appointment with your banker (if you have a choice, apply at the
commercial loan department of your bank).
Take your completed application and business plan.
10.
If
your bank should turn you down, ask the bank to make the loan under the
SBA’s 7(a) Guaranty Loan Program. If
the bank is not familiar with this program have them contact the SBA’s
Charlotte office at (704)344-6563 to discuss your application with an SBA loan
officer. In most cases, the SBA
will deal directly with your bank.
11.
If
you are still turned down, consider the Self Help Credit Union or other
alternatives. For options, visit
your local SBC at RCCC or the SBTDC at UNCC.
MISTAKES TO AVOID IN DRAFTING THE BUSINESS PLAN FOR A LOAN
Here
are errors in business plan preparation that will probably result in denial of
a package by a bank:
·
Submitting
a “rough copy” perhaps with coffee stains on the pages and crossed-out
words in the text, tells the banker that the owner doesn’t take his idea
seriously.
·
Outdated
historical financial information or industry comparisons will leave doubts
about the entrepreneur’s planning abilities.
·
Unsubstantiated
assumptions can hurt a business plan; the business owner must be prepared to
conclude that the idea is not realistic.
·
A
lack of understanding of the financial information is a drawback.
Even if an outside source is used to prepare the projections, the owner
must fully comprehend the information.
·
Absence
of any consideration of outside influences represents a gap in a business
plan. The owner needs to discuss
the potential impact of competitive factors, as well as the economic
environment prevalent at the time of the request.
·
No
indication that the owner has anything at stake in the venture will lead to
denial. The lender will expect the
entrepreneur to have some equity capital invested in the business.
·
Unwillingness
to personally guarantee any loans raises a question:
If the business owner isn’t willing to stand behind his or her
company, then why should the bank?
·
Introducing
the plan with a demand for unrealistic loan terms is a mistake.
The lender wants to find out about the viability of the business before
discussing loan terms.
·
Too
much focus on collateral is a problem in a business plan.
Even for a cash-secured loan, the banker is looking toward projected
profits for repayment of the loan. The
emphasis should be on cash flow.
CRITERIA
BANKERS USE IN MAKING A LOAN DECISION
Bankers
are conservative, factually oriented and realistic.
They will evaluate your loan application using the “5 C’s” of
credit.
1.
CAPACITY
- The borrower’s ability to repay the loan from the normal course of
business operations, as indicated in the business plan.
a)
Existing
business must be able to demonstrate, through financial statements, that
sufficient cash flow exists, prior to the loan, to support operations.
b)
Must
be able to demonstrate sufficient revenue growth and cash flow after the loan
is made to retire the debt.
2.
CHARACTER
- The borrower’s demonstrated willingness and ability to repay the loan as
agreed.
a)
Existing
business must have a clean credit history.
b)
Start-up
business: The owner must have clean personal credit, which means few, if any,
delinquencies, no repossessions, and no judgments.
3.
COLLATERAL
- Provides a secondary source of repayment for the loan and is critical in
start-up situations. Most banks
like to be 100% collateralized. Common
collateral offered and values given:
a)
Certificate
of deposit
100%
b)
Real
Estate
75-80%
c)
Stock
(publicly traded) 75%
d)
Vehicles
75-85%
e)
Equipment
50-75%
f)
Accounts
Receivable
50-75%
g)
Inventory
0-50%
4.
CAPITAL
- The amount of equity invested in the business by the owner(s) and/or
investor(s) or from retained earnings.
a)
Banks
would prefer to see between 25-50% equity invested in a business.
b)
Start-up
businesses: 30% is the minimum equity requirement even for a SBA guaranteed
loan.
5.
CONDITIONS
- Factors in the economy that might impact the businesses ability to repay its
debt or deteriorate its collateral position.
DO’S AND DON’TS WHEN APPLYING FOR A LOAN
Do’s
1.
Do
make a professional presentation; make an appointment, dress in business
attire, have your written materials well organized and ready to present to the
lender. Remember, obtaining a loan
is a “selling job”.
2.
Do
give the lender the most accurate picture possible, the good and the bad. The
lender will appreciate your honesty. You
will be better off presenting the risks of your business rather than letting
the lender discover them.
3.
Do
present the loan amount and terms you calculated to be the most favorable, but
be flexible enough to consider the lender’s changes and suggestions.
You may be able to negotiate interest rates with the lender.
4.
Do
have the lender explain the loan approval process.
Ask for the date when your loan application will be acted upon.
Don’ts
1.
Don’t
become impatient. Sometimes loan
applications must be sent outside the local office for approval.
2.
Don’t
spend the loan proceeds before you have them.
3.
Don’t
be surprised if the lender wants to meet you at your place of business.
Remember, it is the lender’s job to get to know as much about your
business as possible.
4.
Don’t
be intimidated. Ask tough
questions. Make sure you get all
the information you need and that you completely understand the loan
application process before you leave the meeting.
ZONING,
FIRE AND BUILDING INSPECTION
Before you start a business, you should get in touch with the city or
county zoning department, the city fire department and the county building
inspection department. Check the
zoning of your building for the rules that apply to you.
Building permits are required if you are building or remodeling, and
they can be obtained at the building inspection department.
Zoning requirements must be met before applying for a building permit.
Zoning compliance permits may be required even if no building or
remodeling is involved. Be aware
that signs must also comply with specific regulations and zoning and building
permits are required for signs. Also
be aware of fire safety and American Disability Act (ADA) requirements.
CONTACT: