- I have heard that I must have a business plan to borrow money from the bank. Can SCORE help me to write such a plan or recommend someone to prepare it for me?
- I have heard that small business grants are available from the Small Business Administration. If this is true, how do you apply for a grant?
- I want to sell my business. How do I establish the price?
- I wish to buy a business. How can SCORE assist me?
- I have a chance to get the exclusive right to sell a household item wholesale in the Bay Area. The National Distributor wants me to buy inventory worth $5,000 as a condition. Can SCORE help me to make up my mind?
- I am working as an assembler for electronic parts. Recently I inherited $50,000. I don't like my job and want to go into business. What business do you recommend?
- I have an idea about something every household can use to great advantage in the kitchen. I am afraid to tell anyone because it is relatively easy to copy. How can I protect the idea? Should I apply for a patent? How can I market the item?
- Every three months my accountant sends me a financial statement. I usually file it away and wonder whether I could save money if I get the statement only once a year when I need it for the bank.
- I have received a patent for my invention. I spent my savings on it. Where do I go from here?
- I need $15,000 for my business, but the banks are not interested in a loan that small. What should I do?
When you go to the bank with the idea to borrow money, the criteria to get it are usually in this order:
- Do you have collateral?
- Do you have good credit?
- Do you have the ability to pay back your loan?
- Do you know how to manage?
- Do you know the type of business you are about to enter?
A good business plan could give all these answers but certainly will address itself to questions 3, 4 and 5. Therefore, the loan officer in the bank will be impressed if you know what you are doing; but the business plan alone will not guarantee approval of a loan, especially if all aforementioned five points are not covered satisfactorily.
SCORE can provide you with a business plan format and will critique the plan if you wish, but will not recommend anyone else to write it for you. It is your idea, your concept, your dream, your roadmap. If someone else writes it, it is someone else's roadmap. I take a dim view of people who "buy" that service and the lender feels the same way. A business plan is a demonstration of your complete thought process, and you alone can and must prepare it.
Question: I have heard that small business grants are available from the Small Business Administration. If this is true, how do you apply for a grant?
Several departments of the U.S. Government have Small Business Innovation Research (SBIR) programs which allow for grants, but not the Small Business Administration. In the SBIR program, agencies solicit proposals to meet their own R & D needs. You can only submit a proposal in response to a topic presented in an agency SBIR solicitation. It is not feasible that you submit an idea, however brilliant, It could not be funded under this program. Awards of up to $100,000 are possible for about six months to support exploration of the technical merit of feasibility of an idea or technology and in the following phase up to $750,000 for as many as two years. Your real reward will be the commercial application of your research. To answer more frequently asked questions, contact SCORE.
For more information on the release of SBIR solicitations contact:
US Small Business Administration Office of Technology 409 Third Street SW Washington, DC 20416 (202) 205-6450
Question: I want to sell my business. How do I establish the price?
When you sell a business you sell
- Support (e.g. computers, desks, chairs, displays, etc.)
- Good Will.
The inventory should be dated because the sales price for inventory declines with age. The value of the machinery can be determined by calling Used Equipment dealers. Support usually can be sold for about 1% to 40% of retail value. For good will there is not one formula which could be applied to different businesses but several factors must be taken. into consideration. To wit:
- Does the lease continue long enough to allow the buyer to earn money after recouping the good will price?
- To what extent can the buyer count on the customer base?
- What is the trend of the business over the past 3 to 5 years, discounting inflation?
Depending on the answers to those questions, the good will could be between one and five times the earnings before taxes, but after allowing the owner a reasonable compensation. This is not always recognized as a part of the calculation. But your buyer invests his money and his person which must be dealt with separately, as the return on capital plus the financial reward for work performed is the true measure of your earnings.
Question: I wish to buy a business. How can SCORE assist me?
A SCORE counselor who specializes in this area would raise the type of questions which would make it possible for the potential buyer to draw from the answers a complete picture of the business and his chances to succeed. Here are examples:
- What is your experience in that particular field?
- Do you have, or will you be able to obtain sufficient funds for the purchase and for working capital including a reserve for contingencies?
- What have you done to research the reputation of the business and the products sold?
- How old is the business with how many previous owners?
- Have you charted the volume over the Past 5 years to see whether this is a growing or declining business?
- Have you audited financial statements for the past 3 years and/or seller's income tax reports for that period? Obtained a copy of last sales tax report to support the sales volume on a retail business.
- Has seller allowed discount for old inventory and/or machinery? Are these findings supportive of the purchase price?
- Is good will, considered as a promise of future earnings, justified? How many years future earnings?
- What impact does a possible rent increase, which your lease may reflect, have on the future bottom line? Should you re-negotiate your lease for additional options?
- If it is a retail store, have you checked with the planning department of your city whether there are any plans to make your street. a one way street or whether major construction around your location is imminent?
- Has a potential competitor applied for a location around the corner?
- Have you prepared a business plan?
A visit with your SCORE counselor could Potentially save you a lot of money before you buy.
Question: I have a chance to get the exclusive right to sell a household item wholesale in the Bay Area. The National Distributor wants me to buy inventory worth $5,000 as a condition. Can SCORE help me to make up my mind?
You should make a market analysis to establish how many of these household items you can sell and in what period of time. You should also predetermine how many you have to sell to make a profit and how many sales you can finance, depending on the credit arrangement you make with the National Distributor. In general, one should not try to be a one-item salesman, only if you have a collection of household items should you consider to accept the offer. This type of operation finances the supplier and you may be stuck with unwanted merchandise. SCORE will show you how to conduct the market an analysis and determine capital requirements.
Question: I am working as an assembler for electronic parts. Recently I inherited $50,000. I don't like my job and want to go into business. What business do you recommend?
For the time being I suggest you invest your money very conservatively. As a basic rule, you should never plan to do something just because you don't like what you are doing now. To consider to start or buy a business you must prepare yourself to be a good manager, know the type of business inside and out and be able to read a financial statement. And to be successful at it, you must be just a little bit better than your competitor. Make the choice based on what you enjoy and work hard to be an expert at it. When You feel you are ready, come to SCORE to plot the next step.
Question: I have an idea about something every household can use to great advantage in the kitchen. I am afraid to tell anyone because it is relatively easy to copy. How can I protect the idea? Should I apply for a patent? How can I market the item?
Generally, ideas can not be protected without a patent. If you have money and no time, your best bet is a patent attorney. He will treat your idea with confidence and after due time you will get your patent, provided of course that your idea is patentable.
If you have time and a limited amount of money you can do the whole procedure yourself with guidance from a book published by Nolo Press. As a first step you should familiarize yourself with the "Disclosure Document Program" of the Commerce Department. For a fee of $10 you can establish evidence of the date of conception of your invention. You can also write a registered letter to yourself, but I would prefer to use the disclosure document. Your next effort will be a trip to the Brooks Walker Patent & Trademark Center at the San Francisco Main Library. The people there are most helpful and will guide you to search the records.
You must find out whether your idea is already patented. If not, you should now consider a market analysis without disclosing your invention, since your protection begins only after you apply for a patent.
If you invented a better potato peeler, you should simply try to find out whether the public is ready to pay for the advantages you offer. You would not disclose your invention, but you would ask: would it be worth to you dollars if you could peel twice as many potatoes in the same time? If you can project from your market analysis that your idea is indeed sought after then you are ready to apply for a patent. But you must realize that you are only in the middle of the first step of the four conditions which are required to bring your idea to financial reward:
And you must seriously consider whether you have the skills, propensity and funds to tackle 2 & 3 & 4. You should know that your patent is just a hunting license. If somebody copies your invention, you will have to sue, and if your adversary has more money than you have, and it is worth his while, he may appeal all the way to the Supreme Court. A mighty expensive process for you. In any case you will have to prove damages and hopefully your antagonist has not lost his books. My inclination with the type of item you describe is to find a manufacturer who is willing to pay you a royalty, considering your skills and financial strength your SCORE counselor may propose other alternatives. The success of your idea, especially if not patented, will hinge on quick market penetration.
Question: Every three months my accountant sends me a financial statement. I usually file it away and wonder whether I could save money if I get the statement only once a year when I need it for the bank.
A financial statement is just about the best management tool you could receive. It gives you the opportunity to gauge your progress, to compare figures with your business plan, to discover overspending, to compare with national statistics. If you have not used your financial statements in such manner, you must insist that your accountant spend with every financial statement at least one hour to discuss it. If he refuses, change accountants. It is important that you select an accountant who has other clients in the same general type business as yours. He must be able to advise you not just let his computer churn out numbers. He should know and point out weaknesses, over-spending, profit limitations and be able to make recommendations which could change the direction of your business. The importance of the financial statement can not be over-emphasized, but only if you use it as a basis for your decisions.
Question: I have received a patent for my invention. I spent my savings on it. Where do I go from here?
I hope there is a demand for your item. If you have not checked this out before, do it now. Go to retailers who potentially would carry this, and find out how many they would buy. Try to get a "letter of intend to buy." Collect as many of these letters as you can. They will serve you well when you are ready to negotiate with a willing manufacturer to pay you a royalty. To find such a manufacturer, you go to the library and ask for the Thomas Register. It contains all manufacturers and you must look for those who produce closely related items and who therefore might be interested in your patent. Be sure to discuss this further with your SCORE counselor.
Question: I need $15,000 for my business, but the banks are not interested in a loan that small. What should I do?
Nobody will lend $15,000 without security. That security or collateral could be your machinery, your inventory, your furniture and/or your car. Unfortunately you expose yourself to a 'relatively high interest rate to those who specialize in this type of loan. The best thing you can do is: get an equity loan on your house. If your requirement is short term, get the equity line of credit which allows you to pay back as soon as you wish; if the requirement is-long term, you should get the equity mortgage loan. The choice is necessary because of the difference in interest rates. Either way it is the cheapest, soundest loan you can get. Be sure to shop for best terms. Some banks charge appraisal fees, points and recording fees, others don't.
SCORE a national organization of retired business executives that provides technical and managerial counseling and training to people starting or operating a small business.
To schedule an appointment with SCORE call (415) 744-6827
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San Francisco, CA 94105
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