SCORE’s FAQs
- 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?
Answer
- 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?
Answer
- I want to sell my business. How do I establish the price?
Answer
- I wish to buy a business. How can SCORE assist me?
Answer
- 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?
Answer
- 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?
Answer
- 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?
Answer
- 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.
Answer
- I have received a patent for my invention. I spent my savings on
it. Where
do I go from here?
Answer
- I need $15,000 for my business, but
the banks are not interested in a loan that small. What should I
do?
Answer
Question:
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?
Answer:
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?
Answer:
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?
Answer:
When you sell a business you sell
- Inventory
- Machinery
- 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?
Answer:
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?
Answer:
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?
Answer:
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?
Answer:
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:
- Inventing
- Manufacturing
- Marketing
- Financing
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.
Answer:
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?
Answer:
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?
Answer:
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.
Ask SCORE
a question?
 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
455
Market
Street, Suite
600
San Francisco, CA 94105
(415) 744-6827
(415)
744-6750 fax
(800) 310-4357
toll free from: Alameda,
Contra Costa, Marin, San Mateo, Santa
Clara, and Sonoma
Counties
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