Texas Roadmap to Starting a Business

The Feasibility Study The Business Plan Cash Flow Requirements Legal Issues Permits Employee & Contract Labor Financing Options Tax Responsibilities TEXAS ROAD MAP TO STARTING A BUSINESS

The Texas Road Map to Starting a Business contains directions to get your business off the ground and help strengthen our state economy along the way. This booklet covers eight steps to starting a new business:

TABLE OF CONTENTS

CHAPTER 1: THE FEASIBILITY STUDY ...... PAGE 2

CHAPTER 2: THE BUSINESS PLAN ...... PAGE 17

CHAPTER 3: CASH FLOW REQUIREMENTS ...... PAGE 28

CHAPTER 4: LEGAL ISSUES ...... PAGE 32

CHAPTER 5: PERMITS ...... PAGE 37

CHAPTER 6: EMPLOYEE AND CONTRACT LABOR ...... PAGE 40

CHAPTER 7: FINANCING OPTIONS ...... PAGE 43

CHAPTER 8: TAX RESPONSIBILITIES ...... PAGE 47

It is important that you follow the directions found on the first page. Start at the begin- ning and work your way from chapter to chapter. Do not jump ahead or skip chapters. When you finish, you will have completed the background work necessary for starting a business.

While every effort has been made to ensure the reliability of the information presented in this publication, the publisher does not guarantee the accuracy of the data contained herein. Errors brought to the attention of the publisher and verified to the satisfaction of the publisher will be corrected in the future editions.

1 potential customers. After youhavegatheredthis conduct adetailed analysisofyourcompetitorsand in whichyouwanttostart abusiness.You will economic conditionsandthestate oftheindustry this exerciseyouwillgatherinformationoncurrent increase theprobabilityofyoursuccess.During possible risksandrewardsofyourconcept you riskvaluabletimeandmoney. potential. You wantthisinformationnow, before indication ofmarketopportunityandgrowth completing thefeasibilitystudy, youwillhavean cality andviabilityofyourbusinessidea. After prospective businessowner, determinethepracti- is thefeasibilitystudy. This first stephelps you, the Objectives Definition The feasibilitystudycanhelpyouanalyzethe The firststeponyourroadtostarting abusiness Idea Market Analysis aktTime Market Competition Industry Chapter 1: The FeasibilityStudy The FeasibilityProcess Requirements xeineKoldeNo Financing Legal Experience/Knowledge 2 ing therequirementsforstarting aparticular helps youmakeaninformeddecisionbyidentify- become aprofitable business. This exercisealso markets, willhelpyoudecideiftheideacan try, competition, economicenvironmentandtarget analysis, whichthoroughlyinvestigatestheindus- idea canbeforaproductorservice. A market chart belowindicatestheprocessyouwillfollow. ideas objectivelyfromseveralviewpoints. The flow Overview—The FeasibilityStudy is worthyofmoretimeandmoney. information, youwillbeabletodecideifyouridea Every feasibilitystudybeginswithanidea. This The feasibilitystudyhelps youexamineyour eiinGo Decision Re-evaluate Business Plan

Chapter 1: The Feasibility Study business, such as experience, time, and legal and occupation, marital status and lifestyle. What funding issues. needs will your product or service satisfy? What benefits will your customers gain from using A feasibility study can take weeks or even your product or service? What results will your months to complete, but the process puts you at an customers achieve from having purchased your advantage and increases your chances for success. If product or service? you move forward and start your business, the feasibility study will serve as the basis from which Remember, customers buy based on to develop a comprehensive business plan. If you benefits and results, not product specifications— decide to put your venture plans on hold, you can for example, a specification of a life insurance apply the knowledge to other possible ventures, or policy is that it is term or whole life. A benefit is it could prompt you to adjust or re-evaluate your that it pays a sum of money upon your death, original idea. but you purchase life insurance for the results— peace of mind that your survivors will be taken Your Idea: Defining Your Business care of financially.

Your first step is to define your business idea and Competitive Edge: Define your product’s or the opportunity you envision. Include a descrip- service’s unique qualities. What stands out about tion of the product or service you will provide, your product or service to entice buyers to buy your reasons for starting the venture and the type from you? Is it quality, price, convenience or of business you plan to establish (for example, expertise that makes your product or service manufacturing, wholesaling, retailing, exporting/ preferred by consumers? importing or service). Consider these areas, when writing a working definition of your business. Personal and Business Objectives Defining your short- and long-term business Customer Viewpoint: You must adopt your customers’ viewpoint because if you fail to and personal goals establishes the criteria for satisfy your customers’ needs, your business will judging the feasibility of your idea. Ultimately, fail. Briefly describe the products/services you your decision to start a business should be based on will sell and how customers will use them. whether it can achieve your business and personal goals. Ask potential customers, how they would define your product or service. Their perspective Personal Goals: List the goals that satisfy your can give you important insight into how your personal needs. Why are you starting this product or service will actually be used. Keep an business? What motivates you? What do you open mind. If someone uses your product/ want to accomplish? Are you more interested in service in a new way, it may be a benefit you can a lifestyle change than in monetary reward? A add to your marketing strategy. person starting a part-time business may have different personal goals than someone who views Product/Service: Specify the line of product or the business venture as a primary income source. service you will offer and look for secondary opportunities. For example, are there services Business Objectives: Where do you want your you can provide in association with your prod- business to be in the next few years? What are uct, or are there products that result from the your financial objectives? State these goals in service you will provide? such terms as annual sales volume, market share, growth rate, personal income, etc. Customers: Describe your typical customer in terms such as age, sex, income, education, Now review the two lists and describe in 25 words or less how your business will satisfy your 3 business and personal goals. This becomes your channel? For example, are you a manufacturer mission statement. Do your personal and business selling to a wholesaler, to a retailer, or to the objectives match? Is there a good fit with your end user? business idea? If not, you may need to re-evaluate your venture. Otherwise, you’re ready to start your Who holds the power in the distribution chan- market analysis. nel? Market Analysis: Is Your Idea Identify and evaluate how significant changes in the following conditions could affect your business: a Market Opportunity? Social or lifestyle changes Begin your market analysis by examining trends in your industry and collecting information about Economic changes the size of your market segment and target market. Your research can help you identify and learn about Political and/or legal changes your primary customers and major competitors. Analysis of the information you gather will reveal Technological changes marketing strategies for successfully selling your Population (demographic) changes product or service. Any other change in the business environment Your business will exist in a world constantly reshaped by changing social and cultural values, Conducting Your Research economic conditions, political and legal restric- tions, competitive strategies and advances in You can gather your information from existing technology. You must keep alert to these trends and data (secondary sources) or from new data (primary determine how they influence your business. research).

Your research will also lend a more complete To access secondary sources, start at your local understanding of established business practices, library. Many public and private organizations competitive developments and industry perfor- collect and publish data on population and indus- mance standards. tries, which is often available at public or college libraries. For example, trade associations maintain Here are some questions to consider as you industry statistics and projections. Federal, state, conduct your industry analysis. county and city governments also gather data. Just about every regulated industry has an agency that What is your industry, type of business and collects data on it. Don’t forget that the Internet is general product or service category? also a good source. Is your industry growing? Maturing? Declining? Another resource is real estate agents—they can Stable? supply information for specific locations in terms What are the current trends and outlook for of competitors, suppliers, demographics, zoning your industry? regulations, local economic outlook, rental space and costs. Banking and financial offices can some- Does your industry have any special characteris- times provide relevant financial data about your tics? Is it seasonal? Is it cyclical? industry. Additionally, local radio and television stations can provide valuable information about the Who are the key players in the industry? average customer, purchasing patterns and use of media. Where are you positioned in the distribution 4 Be inquisitive. Investigate any resource that firms, market research firms and labor unions. You might offer pertinent information. You’d be sur- can also gain insight by inspecting public filings, prised at the information you can gather by talking classified ads and buyers guides. with former employees of competitors, consulting

Secondary Research Sources Small Business Development Centers

Libraries Local radio and television stations and newspapers Public Sources of Business and Marketing Information Colleges/Universities

Trade Associations Books on How to Conduct Research Competitor Intelligence—How to Get It, How to Industry information, statistics, projection Use It by Leonard M. Fuld. Deals with ways to Trade publications gather information on competition. Covers sec- Trade shows ondary sources, corporate intelligence, statistical Chambers of Commerce and Area Economic sources, trade and business magazines and data- Development Organizations bases. Also includes a section on gaining access to Associations foreign intelligence from U.S. sources and provides Businesses listings of many directories and source books. Resources Published by John Wiley & Sons, 1994

Federal Departments and Agencies How You Can Buy a Business Without Overpaying Small Business Administration by Eugene Merfield and Gary Schine. Published by Service Corps of Retired Executives Consultant Press, 1991 Congressional offices Your Texas Business by Richard Alderman and Regulatory agencies: FDA, OSHA, EPA, etc. Tom Oldham. Published by Gulf Publishing, State Departments and Agencies 1993. Texas Department of Economic Development The Start-up Guide by David Bangs. Published Congressional offices by Upstart Publishing, 1998 State Comptroller’s office State regulatory agencies: Texas Railroad Starting and Operating a Business in Texas by Commission, Texas Employment Michael Jenkins and Donald Sexton. Published by Commission, Texas Education Agency, etc. Oasis Press, 1991

City and County Government Demographic Know-How edited by Penelope City, county and regional planning commissions Wickham. Covers how to find, analyze and use Regional information and communication demographic information. Details approximately exchanges 600 resources. Authorities in the market research County Clerk’s office field discuss how demographic information can impact a business’ bottom line. Published by Banks and Financial Institutions American Demographics, 1988. Realtors

Local and Regional Utility Commissions

5 Guides and Company Information Statistics and Financial and Operating Ratios. Industry statistics are listed under the subject, Business Information, by Michael Lavin statistics, in library catalogs, and under Standard Business Information Sources, by Lorna Daniels Industrial Classification (SIC) code numbers in Directory of Corporate Affiliations publications (see the Standard Industrial Classifica- Directory of Industry Data Sources, by Harfax tion Manual). Such information can also be ob- Directory of U.S. Exporters tained from trade associations. There are also Dun & Bradstreet Billion Dollar Directory; guides to statistics, general collections of industry America’s Corporate Families statistics, and sources of composite financial and Dun & Bradstreet Business Information Reports operating ratios such as: Dun & Bradstreet Million Dollar Directory Almanac of Business and Industrial Financial Dun & Bradstreet Principal International Ratios, published by Prentice-Hall Businesses American Statistics Index Encyclopedia of Business Information Sources, Analysts Handbook, Standard & Poor’s Corp. edited by Paul Wasserman Annual Statement Studies, Robert Morris Encyclopedia of Small Business Resources, by David Associates E. Gumpert and Jeffry A. Timmons Predicasts Basebook Financial Analyst’s Handbook, by Sumner Levine Competitive assessments of certain industries in MacMillan Directory of Leading Private Compa- the United States by the U.S. International nies Trade Administration Moody’s Manuals, such as Moody’s Industrial County Business Patterns, U.S. Bureau of the Manual Census Standard & Poor’s Corporation Records Economic Indicators Standard & Poor’s Register of Corporations, Encyclopedia of Business Information Sources, Directors and Executives edited by Paul Wasserman Thomas Register of American Manufacturers Index to International Statistics Value Line Investment Survey Industry Norms and Key Business Ratios, Dun & Ward’s Business Directory of U.S. Private and Bradstreet Corp. Public Companies Market Share Reporter World Almanac Statistical Abstract of the United States, U.S. Overviews and General Industry Information Bureau of the Census Census Information, U.S. Department of Statistical Reference Index Commerce Statistical Service, Standard & Poor’s Corp. County Business Patterns, U.S. Department of Statistics Sources Commerce Studies of media and markets Current Industrial Reports, U.S. Department of by Simmons Market Research Bureau Inc. Commerce (New York, N.Y.) Forbes Annual Report on American Industry Summary of Trade and Tariff Information, U.S. Industry Surveys, Standard & Poor’s Corp. International Trade Administration Inside U.S. Business, by Philip Mattera U.S. Bureau of the Census publications on Moody’s Investors Industrial Review certain industries Standard & Poor’s Industry Surveys U.S. Industrial Outlook, U.S. Department of Projections and Forecasts. Listed under the subject Commerce in library catalogs and publications, such as: The Wall Street Transcript Predicasts F&S Index

6 Market Data. An overall guide to sources of data as: on consumer and industrial markets can be found Applied Science and Technology Index in such publications as: Business Periodicals Index The Directory of Directories Predicasts Basebook Encyclopedia of Business Information Sources Data Sources for Business & Market Analysis, Guide to Special Issues and Indexes of Periodicals Scarecrow Press New York Times Index Findex (Cambridge Information Gap) Predicasts F&S Index Public Affairs Information Service Bulletin Consumer Expenditures Data Standard Periodical Directory Editor & Publisher Market Guide The Wall Street Journal Index Survey of Buying Power, published by Sales Management Inc. Internet Resources U.S. Census Reports (Business, Housing, etc.) www.biztalk.com Market Studies of particular industries and prod- ucts available from such companies as: www.businesstown.com www.onlinesoho.com/soho_links.htm Arthur D. Little Inc. (Cambridge, Mass.) Business Communications Co. (Stamford, www.businessownersideacafe.com/ Conn.) starting_business/index/php Frost & Sullivan Inc. (New York, N.Y.) Morton Research Corp. (Merrick, N.Y.) www.powerhomebiz.com/vol18/scratch/htm Predicasts (Cleveland, Ohio) Simmons Market Research Bureau (New York, www.RhondaWorks.com N.Y.) Theta Technology Corp. (Wethersfield, Conn.) www.inc.com

Data Services and Databases www.entrepreneurmag.com

CompuServe Information Service Co. (Colum- www.tded.state.tx.us bus, Ohio) www.bcentral.com Dialog Information Service Inc. (Knight-Ridder Inc.) www.morebusiness.com Dow Jones News/Retrieval Service (Dow Jones & Co.) Other Sources Lexis, Nexis, Mesis (Reed Elsevier) AOL (Vienna, VA) Ayer Directory of Newspapers, Magazines and Newsnet (Bryn Maw, PA) Trade Publications Prodigy (Medford, MA) Books and other material listed in library Data Star (Night Ridder, Inc.) catalogues under the industry name Internet Brokerage house reports Magazine and Newspaper Articles published by CIRR: Company & Industry Research Reports trade associations, government agencies and Congressional Information Service commercial publishers. Lists can be found by Encyclopedia of Trade Associations consulting periodical indexes and directories, such Financial Studies of the Small Business

7 Library of Congress—suggested headings: small business management, new business enter- prise, entrepreneurship, entrepreneurs, management, marketing strategy, business ethics, and corporations. NASA Industrial Applications Centers and several universities, such as Southeastern Oklahoma State University, the University of New Mexico, the University of Southern California, and the University of Pittsburgh provide technically oriented reports, studies and literature searches National Trade and Professional Associations of the United States and Canada and Labor Unions Small Business Sourcebook The Source Book of Demographics and Buying Power for Every Zip Code in the U.S.A. The Sourcebook of Zip Code Demographics Yellow Pages Biographical Dun & Bradstreet Reference Book of Corpora- tion Managements Standard & Poor’s Register of Corporations, Directors and Executives Who’s Who directories Source: New Venture Creation, Entrepreneurship in the 1990s, by Jeffry A. Timmons with Leonard E. Smollen and Alexander L.M. Dingee Jr. Published by Irwin.

8 Generally, secondary research sources do not What are their target markets? How do they reach provide all the information you need, and you will these markets? Describe their strengths and weak- have to collect new data. Primary sources range nesses, and rate their performance in critical from networking to formal surveys. They include competitive categories. Is their business growing or customer and supplier surveys, networking, focus declining? group discussions and interviews with customers, competitors and suppliers. Talking to competitors, Learn all you can about your competition. You suppliers, and customers also constitutes primary can use many of the same secondary resources research. Primary research is particularly necessary listed on page 5 - 9. Review financial ratios for the when trying to determine your target market and industry as discussed in Robert Morris Associates in developing client profiles. Also, primary research Annual Statement Studies, pricing strategies and helps you learn about your customers’ buying revenues of similar businesses. Assume the role of a habits and opinions of your product or service. potential customer and “shop” your competition. If this is difficult for you, send a friend. Interview the You don’t need a degree in market research to owner of a similar business in another city or trade succeed in collecting primary data. Consult these area. Talk to your competitors’ customers and recommended publications for information on suppliers. conducting primary research. Compile a competitor profile using the informa- Practical Marketing Research by Jeffrey Pope. An tion you’ve gathered. Who are they? How long excellent introductory resource for conducting have they been in business? Where are they lo- primary research. Discusses various research cated? What is their product or service? What are methods, writing a questionnaire and interview- their prices? What is the quality level of their ing guidelines. Also includes a section on solving product or service? When are they open? specific marketing problems, including new product research, advertising research, simulated You also want to investigate significant substi- sales testing and product positioning research. tutes for your product or service. Customers may prefer to satisfy their needs in other ways with Published by AMA COM, a division of the other types of products. American Management Association, 1993. Use the grid on the following page to help you Mail and Telephone Surveys—The Total Design organize your data. Method by Don A. Dillman. Your Competitive Strategy Provides step-by-step instructions to conducting and implementing mail and telephone sur- Now that you’ve learned about your competi- veys. Also includes a section on developing tion, compare how your operation differs from effective cover letters and increasing response theirs. Develop strategies for gaining your share of rates. Published by John Wiley & Sons, 1978. the existing market by answering the following questions.

What market niche will you fill?

Your Competitors How will your product or service be different and better than your competition? The next step in your market analysis is to identify your direct competition. Describe the How do you plan to compete? How will you differences and similarities between your opera- defend against your competitors’ strengths? tions and theirs. Discuss their business concept. 9 How are you going to price your product or Your first step is to define your trade area, the service compared to your competitors? geographic area that your business will serve. Is yours a neighborhood business that operates in a How will you gain market share? local area with one or a few zip codes? Or do you plan to service a city, county or several counties? How will you take advantage of your competi- Do you require a statewide or national market? tors’ weaknesses? Describe the current business conditions in your Your Suppliers trade area. Is your trade area in a growth pattern with existing businesses expanding, new businesses Knowing your suppliers and how they can growing, and commercial and residential construc- deliver is critical to your competitive strategy. If tion booming? Or is your trade area experiencing a one or two suppliers dominate the market it may contraction with employees losing jobs and con- affect your ability to negotiate favorable terms. It is struction equipment idle? important to know about unreliable suppliers or those that face a financially precarious situation. A key question is whether or not your product or service is already available in your trade area. You can investigate your future suppliers by This could signify a good market opportunity, or it calling the Better Business Bureau, performing a could be a warning flag that others have tried your credit check, collecting information sheets from idea and found the area unsuitable for lack of such companies as Dun & Bradstreet, or asking market demand, political reasons or legal issues. other entrepreneurs who have used them how they would rate the supplier. By performing this due Your next step is to define your target market, diligence on your supplier, you will be able to the market segment that offers the most opportu- answer the following questions. nity for your product or service.

How big are they? A typical business makes 80 percent of its sales to 20 percent of its customers. By identifying that How long have they been in business? critical 20 percent, you can focus your efforts and Where are they located? expenditures on the consumer group that will give you the most return on your investment. In re- What are their hours? searching this target market, you will learn about your primary customers’ needs and how to satisfy What is the company’s reputation? Who are them. You should also study this group’s buying their customers? habits to learn how to reach them with your promotional message. Do they work with small businesses? Are they interested in working with you? Customer profile. Describe your selected cus- tomer market in terms of physical characteristics, Your Market needs and lifestyle. Place a face on your typical customer. What specific benefits does he or she To be successful, your business cannot be every- seek? What personal needs or results will your thing to all consumers. You must identify those product satisfy? markets that can most value your products or services. Your market can be segmented based on You also need to know about the individuals demographics, geographics, buying history, per- who make buying decisions. The person who buys sonal characteristics, or almost anything that ties a your product and the one who uses it may be group together. different. A good example: Adults buy breakfast 10 Comparative Competitor Analysis

Product/ Quality Price Service Location Marketing Other Service Program

Your Business

Competitor #1

Competitor #2

Competitor #3 cereal, but children eat it and thereby may control What is their age range? the buying decision. Where are they located? If you are selling a product or service to a consumer, the following are typical questions to ask What is their profession or industry? in developing a customer profile. Target Market Preferences. Most consumers Who is your primary customer? Male? Female? make purchasing decisions based on how they Both? Business? Government Agency? etc. value convenience, service, quality, price or exper- tise. Why do they buy? Most small businesses stand out because the How do they buy? Cash? Credit? Charge? owner gives personal service. Customers value someone who makes a courteous and personal When do they buy? Daily? Weekly? Monthly? effort to provide special items or timely service. Occasionally? Small businesses have an advantage here because often they can provide this more efficiently than What customer services do they value most? large companies.

How much do they buy? It may be difficult for small businesses to com- pete on price because larger, established competi- Why will they buy from you? tors usually have economies of scale and deeper What is their income or revenue? pockets. Large businesses can typically outlast the 11 new entrant in a price war. It is also hard for a new information you’ve gathered and the marketing business to successfully offer products or services at mix framework. the highest price levels because this requires an established reputation to qualify the “status” or Marketing Mix: The Four P’s “value” of the offering. Most small business owners Product find it easier to compete on a medium price level. Price Look at your situation carefully and select the Promotion preference that your potential clients consider the Place most important. These elements must be “right” for your business Market Demand. Determining market demand to be successful. That is, you must offer the right is critical because if demand is lacking, you need to product or service at the right price using the right reevaluate your business idea. To estimate the total promotional efforts at the right place and time. demand for your product or service, consider the current sales volume and growth potential for your Price. To pinpoint the right price, you need a product or service. Knowing the answers to the combination of experience, market knowledge and following questions will help you determine market good judgment. Study your competitors’ pricing demand for your product or service. and estimate your costs. Can you price your product or service competitively and still cover How many competing firms are located in your costs? trade area and how much business do they do? Consider the following factors to determine the best price for your product or service. What are their sizes? Are prices in your industry stable or do they Are these businesses stable? Growing? Shrinking? fluctuate?

What are the population characteristics of your Must your clients buy from you or is it just as designated trade area? easy to buy from your competitors?

How many consumers are there? How much are your potential customers willing to pay? What is their buying capacity? Remember, your customers ultimately determine What is their need for your product or service? pricing. They will be willing to buy from you within a specific price range. If your costs exceed What percent of the market will you have? this price range, don’t assume that you can pass the difference onto your customers. What is your market’s growth potential? . How will you distribute your product or Your research may show that the market is too Place service? Will it be direct or through wholesalers or small to support another business or it is shrinking other intermediaries? Where will your business be or growing faster than you thought. You may need located? What are the traffic counts at the location, to readjust your strategies. and is this important for your business? The Marketing Mix For some businesses, location is all-important, From time to time, review your original business and the wrong location can undermine an other- definition. It may need refining based on the wise sound business. On the other hand some

12 businesses don’t need a fancy, expensive location if factors might be: customers buy from distributors or other outlets and never see the office. If location is critical to Quality Capital Precise product or your business, invest the time and effort to find the Service Technology service identification best location you can afford. Realtors know about Price Advertising Precise market commercial property, but they may be unfamiliar Expertise Suppliers identification with your business needs, so don’t rely on their Location Distribution recommendations alone. Talk to other advisors. Consider these questions: Where are your custom- Personal Skills Analysis ers located? How will they get to your place of business? What are the traffic and pedestrian Your next task is to define the many resources counts for the location? you may need to start your venture. These range from particular technical skills or management Promotional Strategy. Your advertising and experience to legal requirements and start-up costs promotional strategy affects both your ability to to sources of funding. sell and your business or cost structure. You don’t need a full blown promotional plan now, but it Technical Skills. These skills are unique to each would be helpful to review the following questions. type of business. For example, printers need to know how to operate a printing press, and oil well How will you tell your customers about your drillers need to understand geology. Do you have product or service? the skills to produce the product or render the service? Businesses are often founded on an Will you need to educate your customers about entrepreneur’s technical strengths. the benefits of your product or service? Experience and Knowledge. Describe three Based on your target market’s demographics and critical skills or knowledge areas necessary to run buying habits, what are the best ways to reach your business. How much experience do you have them? in this type of venture? Do you have the experience and ability necessary to make good operating What will gain your customers’ interest and decisions? hold their attention? Every successful business needs a complex mix of Which advertising media will maximize the management skills in many business areas, includ- return per dollar spent? ing marketing, financial analysis, operations, How do your competitors promote their prod- purchasing and personnel. Do you have the man- uct or service? agement skills to successfully lead a business venture? Keep in mind that no one can be a perfect What are the pros and cons of their methods? manager, but most new businesses fail because of poor management so it’s important to be honest How much promotion can you afford and for with yourself. Consider your management how long? strengths and weaknesses, then decide if you need to gain additional experience or knowledge or Key Success Factors. Many businesses, although should hire someone whose strengths balance your founded on good ideas and sound objectives, fail weaknesses. because they lack critical success factors necessary to survive in their market segment. These factors People make the difference in a company’s vary in each industry and market segment. What performance. Good employees can make a mar- does it take to make it in your market? Some key ginal business better, and poor employees can 13 destroy an excellent business. Financing Needs

Time Commitment. Owning a business can be Your next task in the feasibility study is to a wonderful opportunity to be your own boss, to determine how much money you will need to start take charge of your financial future and to work and operate your business until it is profitable. seven days-a-week for nearly 24-hours-a-day with Begin by estimating your start-up costs and how no one to hand you a paycheck at the end of the much money you need to operate your business for week. Are you prepared for the personal demands a year. Make a list of special equipment needed and and sacrifices of running your own business? Use the cost to buy or lease it. Also list one-time the following questions to decide if this is a good start-up costs, including real estate purchase, time to become a business owner. furniture, fixtures, equipment, starting inventory, utility and lease deposits, equipment installation Are you willing to work long hours and sacrifice charges and grand opening promotions. Don’t leisure time? forget to include your insurance expenses as well. How much time will the business require? (Most Insurance needs to be discussed with an insurance business owners work at least 60 hours a professional with specific industry knowledge. week.) Insurance Options How much time can you spend on your busi- Mandatory: Automobile ness? Essential: Liability, fire, product liability, and workers compensation How long before you make a profit? Desirable: Crime, health, business interrup- tion, key personnel, disability and How long before you draw a salary? bonding

Do you have personal family circumstances that Consider the pros and cons of purchasing all or would prevent you from totally focusing on part of an existing business. Sometimes, this your business now? alternative can make some aspects of starting a business easier or less expensive. In answering these questions, you might find that you’re not ready to start a business. Don’t be Sales/Revenues. Forecast your estimated sales/ discouraged. Although the time may be wrong revenues for each month during the first year. You now, you might be prepared in six months or a must forecast sales, costs and profits using assump- year. tions drawn from your market research. Put these assumptions in writing. Legal Issues. You must consider numerous legal issues when starting a business. You may need Break-Even Analysis. Use the following formula licenses, permits or certifications. Do you have to calculate the amount of sales and/or revenue what you need? If not, can you meet the require- needed to cover your business’ total fixed and ments to get them? variable costs for the first year. The break-even point is where there is no profit and no loss. You’ll have to decide how to structure your business (sole proprietorship, partnership, corpora- Break Even = Fixed Costs tion, etc.). Additionally, you should secure protec- Selling Price - Variable Costs (per unit) tion for proprietary products or services, such as or patents, trademarks and copyrights. For detailed Revenue - Costs & Expenses = $0 information about legal issues, see Chapter 4 of this workbook. 14 Fixed costs are those costs that must be met banks are cautious and consider start-up ven- regardless of the sales level. They include such tures risky. Others usually require at least items as rent or mortgage payments and mainte- one-third equity investment plus additional nance expenses; utilities and telephone; salaries, collateral to cover the loan balance. If you have benefits and payroll taxes; insurance payments; the required equity, some banks may consider licenses; legal and accounting fees; office supplies; offering you a loan guaranteed by the U.S. Small and depreciation and interest payments. Business Administration.

Variable costs fluctuate with sales and include Venture Capital Firms. These firms are usually such costs as sales commissions, advertising and not interested in start-up situations. However, marketing expenses, and raw materials. start-ups that have the market potential to grow to $25 million to $50 million in five to seven Using the figures you’ve gathered, calculate your years have been known to receive venture capital company’s break-even point and when it will be financing. Such arrangements will normally reached. require you to give up an ownership percentage to the venture capital firm. Cash Flow Analysis. A schedule showing re- ceipts, disbursements and net cash for your com- Private investors. Some individuals will invest in pany over a specified period of time could be start-up businesses, especially if they are knowl- helpful at this point. A cash flow analysis estimates edgeable about the industry. by month how much cash your business will need for expenses (when you pay your bills) and fore- Your Decision casts when cash will come into your business (payments from customers ). Keep in mind, more It’s now time for you to examine your completed businesses fail because of poor cash flow than for feasibility study to determine if this business lack of sales. For detailed instructions on preparing venture can be profitable. Review your mission a cash flow analysis see Chapter 3. statement. Does your market analysis, competitive analysis, personal skills analysis and financing Financing Your Business. Finding funding is a needs indicate that your idea could be profitable? challenge for every new business owner, but there Will these analysis factors allow you to achieve are several sources to consider. your mission statement? Personal Savings: Most new businesses get 90 to A “Go” Decision. If all these analyses are posi- 95 percent of their cash from personal savings tive, then start organizing your business. Turn to and family and friends. Chapter 2 and begin by compiling your market and industry information into a business plan. Continued Employment. Some businesses start on a part-time basis, permitting the owner to A “No” Decision. If one or more of your analy- continue working full-time for another company ses displays negative results, your idea is not fea- until the new business becomes profitable. sible at this time. Various conditions cause a negative decision. For example, a market may not Friends and Relatives. Many entrepreneurs look exist or is too small. Perhaps the costs are greater to private sources such as friends and family than projected revenues. It is also possible that when starting a business. The money is often there is too much competition for your product or loaned at low interest, which can be beneficial service or that profitability may be difficult to when getting started. accomplish. Banks and Credit Unions. Most commercial You might feel disappointed with a “no” decision 15 but it is much better to learn this now before you spend additional money and time on an idea that won’t be profitable for you.

Time to reevaluate. Your analysis might show that your idea is not feasible, but only temporarily. Perhaps you don’t qualify for a needed license, but you could get the permit with additional special- ized training.

Be careful when you reevaluate. It’s your money at risk. If the projected financial picture looks bleak, the real one won’t be any better. Successful business people know when to walk away. Look for other opportunities or modify your current idea.

16 Chapter 2: The Business Plan 2: Chapter

Chapter 2: The Business Plan

After you complete your feasibility study and Keep in mind, a small business owner’s planning decide to proceed with your business opportunity, responsibility is to maintain control over the your next step is to develop a sound business plan. direction of the plan and, ultimately, the business. Before you start, however, keep in mind the follow- A business plan should reflect your vision of a ing general principles. market opportunity and serve as a blueprint for the future. First, your goal in writing a business plan is to create an organized view of your business ideas—a Fourth, consider these guidelines for brainstorm- road map to follow. The length of your business ing sessions. plan itself is inconsequential. The key is quality, not quantity. By formalizing your ideas on paper, • Follow an agenda with time constraints, and you often identify weaknesses to be considered and limit interruptions. anticipated. Most important, the business plan guides you to your company’s future and lends • Don’t grasp the first idea that comes to mind, focus and direction to your ideas. but generate a long list of possibilities.

Second, although the final document can be • Don’t let anyone dominate the planning session. used to generate investment interest and financing, Involve the entire management team and create the business planning process is primarily an an environment for the free exchange of ideas. exercise to help you conceptualize your business and set reasonable and achievable goals and objec- • Conduct the sessions in an informal, relaxed tives. Theodore Roosevelt once said, “If you aim at setting. nothing, you’ll hit it every time.” The business plan • Don’t rely solely on past experiences for ideas. helps you visualize your target and guides you in Stretch your imagination. hitting your mark. • Don’t be timid or self-conscious about your Third, allocate time to think about the various ideas. Encourage spontaneity and withhold issues you should consider during the planning judgment or criticism of ideas until later. process. Ask others to brainstorm with you, too. If you have a management team, get them involved. 17 Fifth, don’t be discouraged if you meet unex- oughly stepping through the planning process, you pected obstacles. In fact, obstacles are the one thing can identify the strengths and weaknesses of your to count on. Put yourself and your business at an operation. This should allow you to take advantage advantage by anticipating and planning for diver- of your strong points, while giving you the oppor- sions. When outsiders like prospective bankers and tunity to gather resources to counterbalance your private investors read your plan, they consider your weak areas. aptitude as a small business owner. You will earn credibility by candidly identifying obstacles and With all this in mind, let’s get started. your strategies for overcoming them. Section I: Table of Contents Finally, your business plan is a dynamic docu- ment that you should review regularly to determine A table of contents is essential if you intend to whether or not you are meeting your goals and use your business plan to seek financing. Each objectives. It should be adjusted as market condi- investor or banker will read the text from the tions change. The plan is not something you write perspective of their background and experience. once and file away. Follow market conditions and Number the pages of your business plan and revise your business plan accordingly. include a table of contents to make it easier for readers to find what interests them. This will Content increase the chance that they will read your plan. Section II: Executive Summary The length of a business plan varies from com- pany to company depending on the type of busi- The Executive Summary should capture the ness and market it serves. What is more important reader’s attention and entice them to read further. than length is the clarity and substance of the ideas It should be limited to two pages and summarize set down on the pages. Your business plan must the business plan’s key points. Although the Execu- express various issues in a relatively straightforward tive Summary appears at the front of your business and logical manner. Use the following components plan, it should be the last section you write. The as a guide. Executive Summary must reflect your complete understanding of your business idea. You won’t I. Table of Contents achieve this understanding until you’ve written the II. Executive Summary document’s main body. If the reader questions a broad statement made within this summary, the III. Introduction detail of subsequent sections should provide the necessary support. IV. Environmental Analysis Your summary should include, but not be V. Market Analysis limited to, the following components.

VI. Marketing Strategy • Description of your business idea and prod- uct or service, explaining how it stands out VII. Operations from the competition.

VIII. Management Plan • Generic discussion of the target market and the competitive environment. IX. Financial Data • Review of the management team and key Remember, you are the business owner and the personnel, emphasizing their credentials and plan must reflect your ideas and goals. By thor- specific functions. 18 • Identification of capital requirements needed at reasonable wages. On the other hand, low and the general use of these funds. unemployment could make it difficult to attract personnel. A new business owner may have trouble • Summary of potential financial results. competing against larger, established firms that have the financial resources to compensate their Section III: Introduction employees.

The introduction should give a detailed descrip- Do not overlook international market trends tion of your product or service. The information that might affect your industry. For example, you developed and refined during your feasibility although you plan to sell your product or service study will be useful as you write this section. locally, you could encounter competition from international sources. Be aware of these factors and In the introduction bring up any distinctions or plan for them. unique qualities of your product or service, such as a more convenient location or better service. Several resources could help you identify and Additionally, outline any proprietary positions that follow these trends. The National Trade Data Bank give you a competitive edge. These can be patents, of the Bureau of Census lists all overseas imports copyrights or trademarks. If your product has any by commodity. Individual competitors can be sensitive or critical characteristics—such as fire investigated by reviewing annual reports or check- resistant treatment—list these attributes. Your ing with such firms as Dun & Bradstreet. readers will also be interested in learning about features that can positively influence the results of Industry Analysis. By completing the feasibility your marketing strategy. Be sure to also include study in Chapter 1, you gained an in depth under- your experience, special expertise or knowledge of standing of your industry and market. This section the product or service. of your business plan should focus on the results of your investigative efforts. Your research and analy- Section IV: Environmental Analysis sis will provide you with the necessary tools to make informed decisions on market opportunity, The environmental analysis should include three to analyze industry trends and to understand their key components: 1) a discussion of current busi- influence on your business. ness conditions in the area where you plan to do business, 2) an industry analysis, and 3) an evalua- Competition. During your feasibility study, you tion of your competitors. conducted a thorough examination of your compe- tition. You learned about their strengths, weak- Economic Conditions—International, Na- nesses and performance in competitive categories. You don’t have to be an tional, Regional, Local. You identified their target markets, market share economist to run a business, but you should be and strategies, and prepared a comparative com- mindful of key economic indicators that can affect petitive appraisal using key characteristics. Recount your company’s ability to conduct business. Reces- your findings in this section of your business plan. sion trends, high interest rates, declines in retail sales and high unemployment are a few of the Identify your key direct competitors and provide factors to consider when starting a new business. a profile of each. The goal is to demonstrate that you analyzed the competitive environment and Examine the economy to spot events or trends have developed defensive strategies. Explain your that could influence your business decisions. market niche, your competitive strategies and the Concentrate on local business conditions and tactics you will use to capture market share. identify key opportunities and threats to your company. For instance, a large skilled local labor pool could provide you with high quality personnel 19 Additionally, you must address your competi- Target Market. Review your market analysis tors’ reaction to your entry into the market. You performed in Section V. Your target market will also should consider how other entrants could consist of those individuals who will most likely affect your business. buy your product or service. Keep in mind—you can’t be all things to all people. This translates into Section V: Market Analysis focus. Your marketing plan must focus on your target market and the strategies you will use to This section should provide a description of the reach these potential customers. current market and future opportunities. Your research during the feasibility study phase should These strategies should reflect the habits and have provided you with the data to support your lifestyle of your customers. business endeavor. Include-this information as well as a discussion of the following. Sales Organization. Outline your sales strategy. Do you plan to use a professional sales force? Will Geographical Trade Area. Discuss your primary you use internal sales, outside sales or both? Will trade area. State whether you will operate locally or you sell through a retail operation, a wholesale plan to compete within your state, nationally or operation or through mail order catalogs? internationally. Design your compensation scheme. Will you Customer Identification. This section should pay commissions, salary or a combination of both? describe your selected customer market. Who are Or will you utilize bonuses or some other form of you targeting? Develop a customer profile that incentive compensation? illustrates their physical characteristics, needs and lifestyle. What is their buying capacity, habits and Promotion. Discuss how you will generate decisions for buying? What do they value? Discuss potential customers’ attention. What will capture the need for your product or service. In this section their interest? What benefits does the customer you must prove that a market exists in your se- gain from buying from you? What attractive lected geographic area and show the number of customer service or conveniences will you offer? people in the area that match your customer For example, you might offer free delivery, free profile. alterations or discounts on first purchases or certain dollar amounts. Competitive Position. Discuss your competitive advantage. Why will customers buy from you? Marketing/Advertising. As part of your market- What is unique about your product or service? List ing efforts, you can implement various advertising at least three key advantages you have over your activities. Advertising consists of any activity that competitors and describe how you plan to capital- attracts attention for your product, service or ize on them. You must also recognize your weak- company. nesses and how to compensate for them. List three disadvantages and discuss the strategies to secure There are a range of advertising options to your company’s competitive position. consider. Some advertising has direct costs, such as printing or production costs, postage or the cost to Section VI: Marketing Strategy purchase space in a magazine. The most common forms of advertising include: The marketing plan is one of the most impor- tant sections of the business plan. It outlines • Direct mail, such as flyers strategies for selling your product or service. Your goals and benchmarks for the operation should • Brochures, handbills reflect a realistic, credible guide supported by your marketing analysis. • Ads in magazines, newspapers, yellow pages, 20 trade publications or on radio and television. customer’s mind you should address customer needs with consistency and frequency. Check • Trade shows, exhibitions industry norms for averages and use the data as a foundation. You may have to do a great deal of • Sample giveaways estimating in this part, and it’s not unusual for you to change your strategy often, especially in the You should also consider other public relations beginning. activities. These include: Keep in mind that the easiest and most recogniz- • Publicity, such as press releases and articles able forms of advertising—television, newspaper sent to newspapers, radio and television, trade and radio—are the most expensive. Select these journals or magazines media only if it’s appropriate for your product/ • Networking service and your target market. If you are compet- ing with existing successful companies, you must • Seminars, speeches, classes make up in elbow grease what they can do with money. • Civic involvement When preparing a marketing/advertising plan, • Contacts/referrals list the various activities you plan to use and estimate their costs for the next 12 months. Again, Advertising activities can offer short- and long- the cost of the plan must be reasonable compared term benefits. Discuss your advertising approach to the income it produces. For example, it is and strategies to achieve specific marketing objec- seldom reasonable to spend $10,000 on an ad that tives. You want to confine your efforts to your generates $5,000 in sales. target market. Select media that will most likely reach your target markets. These could be newspa- When you’re ready to implement your market- pers, trade journals, television or radio. Set an ing/advertising plan, purchase a notebook or advertising budget based on how much you can organizer to hold a calendar. Chart your market- afford and how much income you expect the ads to ing/advertising schedule, list the chosen medium generate. and note how, when and where you plan to adver- tise. Include information about every ad you To decide which medium to use, compare the intend to place, speeches you will give or network- cost to use a specific medium with the sales results ing events you will attend. Keep daily statistics of you expect it to generate. Keep your target market your sales by product line, the number of custom- in mind and how often that target market uses that ers that walk through your doors and other relevant particular medium. information. Track customer response to ads and promotional activities by asking them where they An advertising plan should be developed within learned about your company, product or service. your budget constraints. For an existing business, These accumulated facts will help you make this amount can be a percentage of sales—for effective decisions for your future marketing/ example, five to 10 percent of sales. If you are a advertising plans. start-up business, your advertising dollars will be a combination of a percent of potential sales and Pricing Strategy and Sales Terms. As discussed earmarked start-up capital. in the feasibility study, correct pricing is essential. How do you plan to price your products or ser- You must commit to some form of advertising vices? Your strategy should reflect the cost to when introducing a new product or attracting the produce your products or to provide your services as customer’s attention. To develop a position in the well as your overall financial goals and objectives. 21 What industry markup, discounts or other Are prices in your industry stable or erratic? methods will you use? How will your price struc- ture compare to the market? Why is it different? How do your sales policies and terms compare Will you give trade credit or any other induce- to industry practices? For example, do you ments to attract new customers? Will you accept deliver? customer credit cards? How do the features and benefits of your prod- Your business’ revenue equals the unit price ucts/services compare to those offered by your multiplied by the unit volume of products sold or competitors? services provided (Revenue = Price x Volume). Price, particularly the “right price,” is therefore an Can you reduce unit costs as unit volume essential component of your financial strategy. increases, or are your costs fixed?

To arrive at the “right price,” you need a combi- Do your clients have to buy from you or could nation of experience, market knowledge and good they just as easily buy from one of your judgment. As a starting point, calculate the cost to competitors? produce your product or service. This is your Who needs your product or service? How many minimum price. To calculate your maximum price, potential customers? Who are they? Where add an amount to the minimum price that reflects are they located? consumer demand and your competition’s pricing. The “right price” falls between your minimum and How much are these potential customers willing maximum price. to pay?

Prices for most products and services are market Are these customers generally aware of the driven. That is, the maximum price you can charge “going prices” for products and services such is determined by what typical buyers might pay for as yours? a like product or service at that time and place and under similar circumstances. Prices are said to be Is there a distinctive aspect of your product or market driven because the market for products or service that will induce customers to pay a services is based on the amount potential custom- higher price? ers are willing to pay, not necessarily the price that you might like to set. Are these customers motivated by price, product quality, service, a combination of each or by To determine the right price, you must consider price alone? various characteristics related to your product/ service and your business and personal goals as How do these customers view your firm com- outlined during the feasibility study. These factors pared with your competitors? What might can relate to your target market position and way cause them to shift their loyalties? of doing business, your competitors, your clients, the current and forecast market, distribution What size quantities or contracts do these channels, regulations and state of the economy. customers usually purchase? What are the average annual purchases of these customers? You should also consider how your answers to the following questions could affect the price you Do these customers commonly “shop” or establish. request bids to find the best price?

Does your firm lead pricing decisions or follow How do you sell your products or services? competitors? What distribution channels do you use? 22 Do you incur different costs for different cus- applications and used in a range of circum- tomers because of their size, type or location? stances usually hold a lower unit price than products that cover narrow areas and have less Do you have a single product/service or do you competition. offer a range of complementary or allied products or other inducements to attract Desired Market Share. Selling at a lower price buyers? than competitors is one way to increase overall market share, but at the expense of a How will your competition react to changes in lower margin. On the other hand, you could prices? charge a higher unit price if market share is not a concern and you’re targeting a larger What is the general availability of similar prod- margin. ucts or services from your competitors? Stage of Market Development. Prices tend to be Are there any unique factors in the market? For lower in a mature market with established example, must you provide delivery or is competition and maximum economies of credit expected? scale. Prices tend to be higher in a new or declining market where volumes are not Your answers to these questions can help you established or are declining. identify some of the internal and external forces that could affect the prices you establish. Related Services. Product prices tend to be lower if sold without any additional services, such as Characteristics related specifically to your delivery, training, installation, maintenance products or services can also help you pinpoint the and repair. right price. Product Turnover. Products with a fast turnover Product type. Consider a lower price if you are can be sold at a lower price, compared with selling a commodity readily available from products with a low turnover. your competitors. Charge a higher price only if your product is patented, unique or custom Marketing Expense. Some products and services designed. require a high degree of advertising, sales promotion and other marketing expenses. Production type. If your product is These could warrant a high price. mass-produced with lower costs for higher volumes, you might charge a lower price than Profit Potential. Prices tend to be lower if the for products that are individually product or service brings a short-term profit custom-built or require a great deal of special or if the profit can be made over a long period expertise. of time.

Product Life. Products with a short life may sell How do you know if your price is too high or at a lower price than a similar product with a too low? Prices may be too high if: longer life. • No one buys the product or service and the Distribution Channel. Products or services sold sales volume is low or nonexistent. directly to the end user or consumer could have a lower price than the same product or • Your competition offers comparable goods or service sold through distributors. services (based on an objective opinion) at a lower price. Market Coverage. Products or services with broad 23 •A slight price reduction significantly increases setting your price, either adding or subtracting sales. from theirs based on any differences in product/ service characteristics or functions. Prices may be too low if: For identical products/services the price should • You’re easily selling 100 percent of your be close to those of competitive products or ser- capacity or output and your clients/customers vices. The exception is if there is something special would pay more. about your product that supports a higher price.

• Your price is below your cost. An exception Discounts to this is when you have deliberately priced low as a loss leader to attract more people and Business owners often use discounts to induce expose them to your other products. customers to buy. For example, some sellers base discounts on cost savings they realized on high New products or services can bring up another volume purchases. Others may offer a discount for set of considerations. When pinpointing a price for early payment. In some industries, discounts are new products or services, ask yourself the following common and it would obviously hurt sales if other questions. Is this a totally unique product or service sellers did not follow suit. for which there is no current competition? Is the product or service new to you, but similar to Cash Discounts. Cash discounts are most often something already offered by others? Is it identical given to customers who pay within a certain period to products or services already on the market? of time—a savings of two percent, for example, for payments made within 10 days. The discount New or unique products and services are diffi- should be large enough to encourage buyers to pay cult to price for several reasons. No competitive early or at least earlier than payables without a information is generally available for price com- discount. parison. There may be no industry information, trade association, established terms of sale or Cash discounts could bring about two results. established market. In a situation like this, deter- First, the average customer might not take advan- mine how consumers currently achieve the results tage of the discount. In these cases, the discount of the new product or service. Then, determine may not be effective or is set too low to encourage what it costs them to achieve these results now. payment. Second, some customers may take the Can you provide consumers with the same results discount, even if they don’t pay within the qualify- at a competitive price? ing payment period. For example, you decide to offer a two percent savings on payments received in When introducing new products, you may incur 10 days. The customer, however, pays in 30 days higher marketing and promotional costs and may and takes the discount anyway. If this happens, you want to set a higher price to allow you to rapidly must decide to either allow the discount or ask the recover those costs. If this strategy doesn’t work, customer for full payment. you can easily and rapidly lower prices. Volume Discounts. Volume discounts are based Another school of thought suggests that you can on the unit quantity purchased and are offered to set a lower price to gain rapid attention for a new encourage larger purchases. For example, a tire product or service, then raise the price as market supplier may choose to sell two tires at $50 each or share grows. four tires at $40 each. Volume discounts can be offered as a normal business practice or for limited Some products or services might be new to you periods. or to a market but compete with similar items. You could use the similar product/service as a guide for 24 Volume discounts have several advantages. First, subcontractors. Additionally, include a complete large orders can reduce associated marketing costs list of necessary equipment and the cost of each. for selling, shipping, packaging and delivery. These costs can then be passed on or shared with the Cost and Inventory Controls. Develop and customer. Second, if a seller offers a range of explain inventory control procedures in this sec- products, discounts on the entire range can encour- tion. How will you track the flow of goods from age sale and turnover of less popular products. raw materials to finished product? Have you clearly Third, special discounts can reduce stocks of slow identified the costs associated with your inventory moving, low turnover inventory. Fourth, sellers levels? Do you have alternative suppliers for critical may take advantage of the discount and purchase materials? If some materials are price sensitive, larger quantities. what is the projected impact on costs to produce the goods? Volume discounts can present problems, which can be remedied with advance planning. For Invoicing and Collections. Produce a policies instance, customers may ask for a discount even and procedures manual for invoicing customers though their purchase falls below the qualifying and collecting payments. Outline methods for discount level. Another situation may arise where establishing the credit worthiness of customers, customers purchase a large quantity at the last invoicing for goods delivered or services rendered, minute, which causes inventory shortages or and collecting payments. production scheduling problems. Personnel Requirements. Discuss your staffing Trade Discounts. Trade discounts also may be requirements. Clearly outline job descriptions, common in some industries. For example, distribu- specific training needs, salary schedules and perfor- tors may receive five percent off a manufacturer’s mance evaluations. Develop a personnel policies list price or some other published price list. Trade manual that clearly addresses issues related to your discounts also may be combined with volume business’ daily operations, such as absenteeism, discounts. overtime, vacation and smoking.

Advertising Allowances. Advertising allowances Section VIII: Management Plan are promotional discounts that suppliers offer in return for some action by the buyer. An example of A management plan is critical to your business this is when a manufacturer offers a retailer a five plan because it gives you a clear understanding of percent discount in exchange for a specified type your management team’s strengths and weaknesses. and amount of advertising. The bottom line is that “people make the differ- ence.” Your management team needs the skills, Section VII: Operations experience and chemistry to successfully and profitably guide your business. Review your team’s Discuss operational activities in this section of expertise. Determine if they lack key management the business plan. Address these key points if they traits and outline plans to acquire the missing apply to your particular business. expertise.

Plan Capacity and Production Scheduling. In Organizational Structure. Draw an organization this section, manufacturing concerns should chart outlining all full-time personnel and their job discuss the range of their facilities, including titles. This section should also include job descrip- production strengths and weaknesses. Also, include tions, qualifications and compensation for all a diagram of the shop floor, develop a production positions. schedule and identify capacity on a unit basis. Indicate if you plan to subcontract any portion or Key Managers and Functions. Describe the all of your work and describe how you will select duties and responsibilities of key personnel and 25 management executives. Include detailed resumes • Develop pro forma financial statements and that explain pertinent business experience and prepare balance sheets for at least three years. expertise. Also include a salary schedule and pay Complete income statements (also known as periods. Summarize the strengths and weaknesses profit and loss statements) operating and cash of the management team. If appropriate, list the flow projections on a monthly basis for the board of directors and explain their level of in- first year, quarterly for the next two years and volvement and contribution. annually thereafter.

Section IX: Financial Data • Review the break-even analysis you con- ducted in your feasibility study to determine The final section of your business plan will be how much you must sell to cover your ex- financial statements for your business. These penses or costs with no profit or loss. financial statements integrate all your research into reasonable, realistic numbers. You must demon- • Calculate key business ratios based on ex- strate that you have fully tested the numbers based pected performance. on the assumptions and data you’ve collected. The statements you develop will demonstrate how To develop your scenarios, you need to under- thoroughly you have examined and researched your stand income statements, cash flow statements and ideas. The focus of this section is to put together breakeven analyses (also discussed in Chapter 1: pro forma numbers (projections) that directly reflect The Feasibility Study). Each serves a different the market demands for your product or service purpose. and your costs to deliver it to the market. An income statement shows money transactions You may want to develop three different finan- over a definite period of time, one month or one cial statement scenarios to illustrate your forecast year for example. It shows how much money came performance: the best case, worst case and mostly in (revenues) and how much money was paid out likely case. Follow these guidelines to compose (expenses). each scenario (see Chapter 3: Cash Flow Require- ments for more information on calculating financial A cash flow statement presents a business’ cash data): position by showing when money is collected and spent. The form Monthly Cash Flow Projection, • Prepare your financial projections based on produced by the U.S. Small Business Administra- realistic and credible assumptions. These tion (SBA Form 1100, 3-93), is an excellent tool. A could include sales forecasts based on your copy of this form is included in the back of the marketing plan and materials costs and book. expenses, such as advertising, taxes and insurance. A break-even analysis determines the point where sales and expenses are equal. It identifies the sales • Discuss funding requirements to start your level or the volume of units you must sell to cover business, the sources of these funds and how your fixed and variable costs. If you exceed your the proceeds will be used. These costs are in break-even point, then you are “in the money,” addition to operating costs. They are not whereas if you fall below your forecast break-even, deductible but are usually amortized over a you are in a loss position. five year period. The balance sheet gives a snapshot of the firm’s • List the equipment you plan to purchase and financial position. It shows your assets (what you the cost for each. own), your liabilities (what you owe) and your

26 owner’s equity (your investment in the business). Final Considerations At any given time, your total assets should equal the sum of the total liabilities and owners’ equity. When packaging your business plan, you may That is: want to include a cover sheet and cover letter. Every business plan should begin with the business’ Total Assets = Total Liabilities + Owner’s Equity and owner’s name, address and telephone number. If you intend to mail the plan to someone—to a Key business ratios give insight into the prospective investor, for example—prepare an company’s financial health. Ratios provide you accompanying cover letter. The letter should be with data to evaluate your business’ liquidity or short, state your purpose and identify the results solvency, activity efficiency and profitability. The you desire. current ratio measures the business’ ability to meet its current obligations. It is calculated by dividing You should also consider visual aids. Charts and current assets by current liabilities. For example, a graphs will make your business plan visually current ratio of 2.0 means that there is $2 in appealing and easier to read. current assets for every $1 in current liabilities—or to say it another way, you have $2 available for every $1 you owe.

Key business ratios also can be used for compari- son. You can evaluate the financial performance of your firm against its past performance, compare your financial data with that of similar firms or measure your company’s performance against industry norms.

If you have thoroughly estimated your sales and expenses, you should be comfortable with the results derived from your scenarios. If your bottom line says that your business will be unprofitable, then re-check your figures. If, after re-evaluating them, the numbers still reflect problems, then consider this a warning signal. Remember, it’s your money at stake. If the projected financial picture doesn’t make sense on paper, more than likely the real one won’t be any better. That doesn’t mean you should abandon your quest to run your own business, but you ought to back away from the current idea and look for other opportunities. Remember these words from the wise and experi- enced: To be successful, new entrepreneurs must develop one essential skill—knowing when to walk away.

27 planning tool foryourbusiness,pullout thecopy to theseandotherfinancial conditions. can becashpoor. The cashflow analysisalerts you trouble. Othersmaybemakingaterrificprofit,but a greatdealofcash,yetmaystillbeinfinancial faring atanygivenmoment.Manybusinesseshave smallest businessneedstoknowhowwellitis where abusinessisheadedfinancially. Eventhe analysis is expand andmaintain yourbusiness.The you decidehowmuchcapital youneedtolaunch, ones won’teither. present afavorableoutlook,mostlikelytheactual financial outlook.Ifyourplannednumbersdon’t important forthisexercisetoproduceapositive pay its daily, monthlyandyearlyexpenses.It’s whether yourbusinesswillgenerateenoughcashto cash flowanalysis. converting themintonumbers. The testiscalleda advertising plan,it’s timetotesttheseideasby and established salesgoalsusingamarketing/ service, assessedyourcustomersandcompetition, To seehowacashflowanalysiscanworkas a The cashflowanalysisisaplanningtool.Ithelps The cashflowanalysishelps youdetermine Now thatyou’veidentifiedyourproductor commonly usedtotakesnapshotsof Chapter 3:CashFlowRequirements cash flow 28 Completing theForm refunds fromsuppliersorvendors. collection ofaccounts receivable,salesofassets and businesses, fundingsourcesmayalsoinclude and loansfromownersorlenders.Forexisting sales, theowners’ investment cash. Forastart-up business,thisusuallyincludes able write acheck.Itdoesnotinclude money inyourbankaccountonwhichyoucan Small Business Administration office. side. You cangetadditionalcopiesfromyourlocal guidelines forcompletingtheformonreverse spreadsheet ononesideandacompletesetof Cash FlowProjection will beyourguide. of thecashflowforminbackbook.It month, enter theamountofcashyou thinkyou PreStart-Up positionorundertheappropriate cash yourbusinesshason hand.Now, ineitherthe Find line1under Your firsttask istoidentifyallyoursourcesof Cash This form,SBA Form1100 (products orservicessold,butunpaid). as usedherereferstoactualcurrencyor Pre-Start-Up is

handy becauseithasa (equity), (3-93) Monthly accounts receiv- and enterany bank loans

Chapter 3: Cash Flow Requirements will receive on lines 1, 2(a), 2(b) or 2(c). days, you must pay full price. Managing accounts payable is extremely important in order to receive For instance, if you plan to invest $20,000 in quality merchandise in a timely way. Planning for your business and make this money available to your inventory needs also allows you to obtain your business in the first month of operation, then volume discounts. For example, you can achieve a put $20,000 under month 1 on line 2(c). If you $15.25 cost savings by purchasing 100 units at $10 plan to have cash sales in the second month of each versus purchasing 101 units at $9.75 each. If $8,000, then put $8,000 under month 2 on line you are selling services to the public, planning your 2(a), and so on. time and developing a personnel schedule allows you to minimize payroll expenses and taxes, while Note: The first time you perform this exercise, still having the ability to generate sales. For each don’t include the money you plan to borrow. This type of service your company offers, estimate how exercise helps you determine what amount, if any, many man-hours are required to perform quality you should borrow. work. Multiply man-hours by hourly wage or salary to calculate gross payroll. Payroll taxes are After you have identified all sources of existing calculated based on federal and state percentages of and incoming cash and placed the amount in the gross payroll. Variable expenses like cost of inven- appropriate columns, add and complete lines 3 and tory and payroll expenses are the largest cost of 4 to show Total Cash Receipts and Total Cash doing business, therefore estimating carefully will Available. At this point, you should know how increase your chances of profitability and success. much cash you plan to have in each of the 12 months from all sources. You’ll also know the total Other expenditures are your final type of cash receipts expected from each source. outlay for consideration. These occur on a more infrequent basis than fixed or variable expenses and The next job is to identify how you plan to should be entered on lines 5(s) through 5(w). spend this money. Under Cash Paid Out (Item 5 in Other expenditures include such items as deposits, the description area), write each category of expen- installation charges, leasehold improvements, office diture on the appropriate lines. Start with the items furniture and equipment. that remain the same each month. These are your fixed expenses and should be entered in Items 5(a) Monthly fixed and variable expenses can offer through (q). Fixed expenses include rent, wages, clues to many of these other expenses. As an loan payments and insurance. example, think about your office or store front. Although there is a monthly rent or lease associated Next fill in the expenses that will vary directly with occupying this space, you will probably be with sales revenues (variable expenses). For a retail, charged a deposit and may need some additional manufacturing, or wholesale company, inventory money for leasehold improvements. planning is most important. For service companies, payroll expenses, payroll tax expenses, and em- The telephone is another example of how one ployee benefits are most important. Consider item carries many cash requirements. There are contacting numerous suppliers of your inventory. seven basic costs associated with using this required Discuss payment terms (accounts payable), early business tool: payment discounts, and volume discounts. For example, 2% discount before 10 days; net 30 days 1) Line costs (fixed monthly cost) discount can substantially lower your cost of inventory, thus increasing your bottom line profit- 2) Long-distance costs (variable monthly cost) ability. 2/10 N 30 means that if you pay your suppliers within 10 days, your save 2% of the cost 3) Telephone equipment rental, lease or pur- of the inventory, but if you pay between 11 and 30 chase (could be a fixed monthly cost or a one-time expenditure) 29 4) Initial service deposit (one-time expenditure) the ending cash position of one month becomes the Cash-On-Hand (Item 1) for the following 5) Line installation costs (one-time expenditure) month.

6) Wiring costs (one-time expenditure) After you calculate the amount for each column, look at the line titled Cash Position (Item 7). If the 7) Name listing costs in yellow pages, etc. (fixed numbers are all positive, then you’ll have enough monthly cost) cash on hand to pay your expected obligations for the year. If any of the numbers are negative, then The cash flow analysis helps you examine your you plan to spend cash you don’t have, and you’ll business idea and determine associated costs. Most need additional capital to stay open for business. people can identify the cash that comes into the Consider this negative number as the minimum business, but some people overlook the many ways funding amount, because rarely are reality and your cash is spent. To make the cash flow statement a cash flow statement identical. Additionally, many useful management tool, be thorough in gathering businesses cannot sustain a cash flow great enough this information. to pay their own way within the first year, so it If you don’t know what to expect, call a few would be wise to evaluate years two and three as people. For example, call the telephone company well. and ask what costs you can expect. From this Next, build a reasonable cushion of funds in case conversation, you can easily determine the line your plan doesn’t work as expected. By combining costs, required deposits, an estimate of your instal- this cushion—the minimum funding amount and lation and wiring costs, your listings and yellow any cash shortfall in years two and three—you can pages costs, and the various options available identify the additional investment or borrowed regarding telephone equipment. Once you have finances you need to give your business a fighting this information, you can decide to either rent, chance. Most banks will allow you to add a 3% to lease or purchase the telephone equipment. 5% cushion to your minimum funding require- Finally, some guesswork is necessary to estimate ment. your monthly variable costs, such as long distance This exercise may seem complicated, but you charges. Remember, as your business grows, some need to work through it alone. If you need some of your expenses will also grow. Don’t estimate that help, contact your local Small Business Develop- your business will double its volume while keeping ment Center or see a certified public accountant. variable expenses constant. This not only consti- But do the work yourself. tutes poor planning, but doesn’t reflect well when someone—like a banker—reviews your cash flow Why is it important for you to complete the statement. cash flow statement on your own? First, it’s your business and this tool helps you better understand After you’ve identified your cash outlays (fixed, your financial position. You need to learn the cash variable and other expenditures) and placed the flow statement inside and out. Review the cash amounts in the appropriate columns, complete flow statement at least twice each month. It should Item 6 Total Cash Paid Out. Add your expenditures be reviewed at the beginning of each month to see for each month, and don’t forget the 14th column the goal. Then it should be reviewed at mid-month Total. Add the numbers in each row to create a to determine if you are on target with the projec- total for each expense type. tion. Update and use it constantly. It allows you to Next, subtract the Total Cash Paid Out (Item 6) see your business’ future while you still have time from Total Cash Available (Item 4) to arrive at Cash to change it. Position (Item 7). Do this from left to right because 30 Second, as a small business owner, you need to get used to doing things on your own. Until your business becomes profitable, you must be conserva- tive about how you spend your money. This means, at least for a while, you’ll have to wear the hat of president, planner, accountant, operations manager, sales executive, delivery person and almost every other job in your company.

The cash flow statement can also be converted into a break-even analysis by playing some what if games with the revenues and variable expenses. By manipulating these numbers to make your year-end additional cash required total close to zero, you can define your company’s minimum survival level.

The cash flow statement can also double as a budget. By continually comparing what actually happened to what you expected, you not only improve your ability to predict the future, but you also gain insight into those areas that are “out of control.”

If you have additional questions about the cash flow statement, check the guidelines on the reverse side of the SBA Form 1100. If you need extra copies, check the Miscellaneous section at the end of this booklet for the SBA office nearest you.

31 Chapter 4: Legal Issues

Chapter 4: Legal Issues

The next step in starting your business is to etor owns of value (with some exceptions) is up for select the best legal form for your new business grabs against outstanding debts and other liabili- venture. The choices include sole proprietorship, ties. partnership, limited liability partnership, C Corpora- tion, S Corporation and limited liability company. Partnership

Sole Proprietorship The next step up the ladder of complexity and expense is the partnership or general partnership. A Most new businesses are sole proprietorships for partnership can exist when two or more people or several reasons: 1) It’s normally the easiest and least businesses join together to operate a business. This costly way to organize, 2) It does not require business form may be more costly than a sole formal legal papers, and 3) It does not require a proprietorship if the partners require a written separate tax return (profit and loss are reported on partnership agreement. a separate schedule within your personal tax return). The partnership agreement’s sole purpose is to establish the rules and regulations by which the In many cases, a sole proprietorship is a good partners can conduct business. Although it is not way to get started—but this business form has mandatory, an attorney’s help in this endeavor may serious drawbacks. Under a sole proprietorship, be useful. The agreement does not determine business ownership is nontransferable and the life whether a partnership actually exists, but common of the proprietorship is limited to the lifetime of law and the IRS asserts that if a business looks, the proprietor. Additionally, this business form smells and feels like a partnership, then it probably makes no legal distinction between your personal is one. and business debts. Besides the additional costs of establishing a The latter point can be financially devastating. partnership, you should carefully consider the Without legal separation, the business’ assets and concern of unlimited liability. Under the general liabilities are also the proprietor’s personal assets partnership a separate business entity does exist, and liabilities. Consequently, anything the propri- but creditors can still look to the general partners’ 32 personal assets for satisfaction. And even worse, in also provide other necessary documentation. some cases, a claim against one general partner may be satisfied with the personal assets of the other Remember, you must keep a corporation in good general partner. standing every year by submitting the required minimum documentation and fees. If not, your Limited Liability Partnership corporate shield can be stripped away, leaving you individually vulnerable. The limited liability partnership is an alternative business form. It is attractive for certain profes- From a taxation standpoint, you need to con- sional businesses because of the concern over sider several points regarding corporations. There unlimited liability for all partners in a general are two corporate forms to consider: 1) C Corpora- partnership. The limited liability partnership is tions and 2) S Corporations. similar to the general partnership, but each The original corporation business form is a partner’s unlimited liability may exclude obliga- Corporation. A few of its characteristics are: tions resulting from the professional mistakes made by or malpractice actions against the partners. The • Its maximum tax rate is significantly lower partners are generally responsible for all claims and than for an individual. liabilities resulting from all other partnership activities. • The shareholders (owners) are not taxed personally for profits, nor do they benefit To ensure that all legal requirements are satis- from any losses. fied, it’s a good idea to consult an attorney to organize this type of partnership and prepare the • The owners pay personal taxes on any salaries appropriate documents. and dividends. The bad news is that divi- dends are taxed twice—once to the corpora- Corporation tion and again to the individual.

The corporation is the most complicated and Many small businesses solve this dividend costly business form. Yet, the expense, complexity problem by electing to be an S Corporation. The and extra work are often well worth the effort. The characteristics of this business form include: primary advantage of incorporating lies in the area of liability—a corporation has its own legal iden- • Profits and losses are treated as if it were a tity,—one completely separate from its owners. The partnership. corporation safeguards the business owner’s per- sonal assets, and this protection alone justifies the • Distributions to share holders are generally additional expense and paperwork. free of tax.

The corporation does have some negative • There is no added cost to the incorporation aspects, however. First, it is more costly, partially process or filing of Tax Form 2553. because it is wise to seek guidance from an attor- The S Corporation allows you the protection of ney. Second, you must obtain a charter (approval) a corporation with some of the financial flexibility from your state to operate a corporation. Addition- of a partnership. The election is relatively simple to ally, the owners must deal with numerous local, make, but it needs to be timely, otherwise your state and federal regulations and reports during pocketbook may be hit seriously. If you think daily business operations. someone is handling this for you, here are a few An attorney normally files the forms required by words of warning: Don’t rest easy until you actually the state to obtain your charter. Your attorney can see both the election request and a letter from the 33 IRS authorizing the S Corporation. And don’t clerk’s office and ask for How to Register Your forget to include both your signature and that of Business Name in Texas, produced by the Texas your spouses’ on the election form. Department of Commerce. It not only tells you how to proceed, but also answers many commonly In the long run, the key to your decision is the asked questions. additional cost and paperwork burden of incorpo- rating in comparison to the liability and separate The IRS requires an SS-4 form, which issues entity issues of other business forms. your business a tax identification number. You will find an explanation of the requirements and the Limited Liability Company use of this form in IRS Publication 583. After completing the form, you can expedite the process The Texas Legislature recently created a new by calling the IRS in Austin. An IRS agent will ask legal form, the Limited Liability Company (LLC). for the information over the phone. If the informa- This business form provides owners with the tion is complete and you are an authorized agent of liability protection of a corporation and, if properly the business, an identification number will be established and operated, the federal income tax issued immediately. benefits of a partnership. Note: If you need a copy of other IRS forms, call The LLC is formed in a similar manner as a 800/829-3676 or drop by any IRS location. corporation. The owners must file articles of organization with the Texas Secretary of State and License and Permits pay the required filing fee. The name of the com- pany must include the words Limited, L.C., LLC, Your business may also require certain profes- or Ltd. The company’s owners are called members, sional or occupational licenses to operate. For not shareholders, and the directors are called information on those that may apply to your managers. business, contact the Texas Marketplace, Business Information and Referral Specialists at 800/ The major advantage of the LLC is that the 888-0511. Ask for a free copy of A Guide to Texas individual member or manager is usually not Business Licenses and Permits. personally liable for the LLC’s debts, obligations or liabilities. The LLC, like the corporation, is always Patents subject to attempts to pierce the liability shield and hold the individual member or manager personally A patent is a right of ownership granted by a liable. government to an inventor. In the United States, it excludes others from making, using or selling the To ensure that you satisfy all legal requirements, patented invention or name for a limited period of hire an attorney to organize the LLC and prepare time. Existing patents may restrict those rights. If the appropriate documents. patent protection is desired in other countries, the invention must be patented in each of those Additional Legal Paperwork countries.

Regardless of the legal business form you select, Besides having the right to exclude others from you must complete and file IRS Form SS-4. making, using or selling the invention, the U.S. patent owner has other rights, such as granting The Assumed Name Certificate legally permits licenses of the patent right to others, filing a you to conduct business under a unique name lawsuit to enforce the patent rights, assigning or other than your birth name or your corporate selling the patent and transferring the patent to a name. To obtain the certificate, go to your county beneficiary under a will. 34 In the U.S., there are three different types of Trademarks and Service Marks patents: utility, design and plant patents. The most common is the utility patent, which grants a The field of trademarks and service marks is a 17-year exclusionary right for new and useful narrow area of the law that is frequently overlooked inventions. Design patents cover new, original and and often plagued by popular misconceptions. ornamental designs. Plant patents are directed toward distinct and new plant varieties. Any person It is commonly believed that filing an “assumed who invents or discovers any new and useful name” or “d/b/a/” with the county clerk will products, machine or composition of matter, or reserve and protect a trademark or a service mark. any new and useful improvements thereof, may It is also generally assumed that incorporation of a obtain a U.S. utility patent. A patent may also be business with the secretary of state protects a trade obtained for the conception of an invention. name. These acts performed by the county clerk and secretary of state are irrelevant to the trade- Obtaining a U.S. patent is a two-step process. mark protection. A trademark cannot be reserved; First, a search should be made to see if the inven- trademark rights can only be acquired through tion is patentable. Second, a formal patent applica- actual use. tion must be submitted. The search, if performed well, will indicate patentability, reveal conflicting Without exception, every business uses some situations, help plan the scope of the patent protec- kind of brand name or logo design as a means of tion sought and, in general, be critical to drafting identification, even though these words and sym- the patent application itself. This need for an bols may not be formally recognized as a trademark expertly done search suggests the inventor should or service mark. Trademarks, also called brand seek a patent attorney. names, are used by merchants and manufacturers to identify goods. Some inventors may wish to make a preliminary search of patents already granted to see if someone Service marks identify services rather than else has patented what they are considering before goods. If a business is not manufacturing a prod- seeking expert legal advice. A system of Patent uct, it will typically be offering some type of Depository libraries throughout the U.S. facilitates service. such searches. Information, forms and fees related to the submittal of a patent application and other The law that protects trademarks and service information about patents and patent publications marks is designed to prevent customer confusion, can be obtained by writing the U.S. Department of and to prevent unfair competition by a competitor Commerce, Patent and Trademark Office, Wash- who capitalizes on the goodwill and reputation of ington, D.C. 20231. another.

There is filing fee for a basic utility patent If a federal registration has been issued by the application. Additional charges are made for United States Patent and Trademark Office, the claims, depending on the number in the applica- letter R enclosed-within-a-circle should appear as a tion, and for patent application revisions. A utility superscript adjacent to the mark to obtain the full patent issuing fee is required when the patent is measure of federal protection. It is possible to granted. In addition, maintenance fees are due in 3 register a mark under the trademark laws of each of 1/2, 7 1/2 and 11 1/2 years, respectively, after the the 50 states. However, state registration alone does utility patent is issued to keep it in force. Nearly all not confer the right to use the R-within-a-circle these fees are reduced by 50 percent when the symbol. The superscripts TM and SM serves as a application is a small entity, such as an indepen- warning to others that the user considers the mark dent inventor or a small business. to be exclusively his or hers.

35 A Texas trademark registration and a federal registration are constructive notice of the registrant’s claim of ownership. A federal registra- tion provides coast-to-coast protection. A Texas registration only provides protection within the state. Federal registration improves with age; if a trademark has been in continuous use for five consecutive years after issuance and if the appropri- ate affidavits have been filed, the mark becomes incontestable as a matter of law.

If a mark is registered and a third party is think- ing of using a similar mark, the third party will typically locate the registered mark during its initial trademark search. Selection of a new trademark is an exciting, but sometimes frustrating, experience. In most situations, several potential marks will be under consideration for ultimate selection as the new trademark.

In Texas, a trademark application will typically be examined within 30-90 days after it is received in the secretary of state’s office. The examiner will conduct their own search to determine if there is any conflict. It currently takes an average of 13 months to get a federal registration.

For more information on trademarks in Texas, contact:

Secretary of State State of Texas Corporate Section P.O. Box 13697 Austin, TX 78711 Phone 512/463-5770 www.sos.state.tx.us

For more information on federal trademark registration, contact:

The Public Service Center at the Patent and Trademark Office Phone 800/786-9199 www.uspto.gov

36 Chapter 5: Permits

Chapter 5: Permits

During your feasibility study you considered the is designed for businesses requiring multiple various licenses and permits you may require to applications for Texas licenses or permits. It operate your business. The Texas Marketplace, targets the agencies the applicant needs to Business Information and Referral Specialists at the contact and the type of information required Texas Department of Economic Development can to process the application. assist you in obtaining the appropriate permits to operate within Texas. Operating in Texas

The State of Texas defines a permit as “any A non-Texas company currently doing business license, certificate, registration, permit or other in other states may obtain the right to transact form of authorization required by law or by state business in Texas by contacting the Office of the agency rules to be obtained by a person in order to Secretary of State. Companies have the option of engage in a particular business but does not include filing domestic incorporation papers or obtaining a a permit or license issued in connection with any Certificate of Authority. For more information form of gaming or gambling.” contact:

Specifically, the Business Information and Office of the Secretary of State Referral Specialists: P.O. Box 12697 Austin, Texas 78711-2697 • Refer you to appropriate federal, state and Phone 512/463-5770 local agencies. It can also facilitate contact Fax 512/475-2761 between you and state agencies responsible for www.sos.state.tx.us processing and awarding permits. A Texas business that chooses not to incorporate • Provide a research library of resources on must file a fictitious name statement or state agency regulatory procedures. doing-business form with the county of record • Furnish a 25-day turnaround permit package where the business is conducted. through the comprehensive application. This Here are some of the other available permits, 37 examples of their applications and offices to contact. Municipal Solid Waste Div. 12100 Park 35 Circle Agricultural Permits Austin, Texas 78753 These vary depending on each specific business Mailing Address: activity and industry. If you plan to produce seed, P.O. Box 13087 contact: Austin, TX 78711-3087 Phone 512/239-1000 Texas Department of Agriculture Fax 512/239-6717 Seed Quality Office http://www.tnrcc.state.tx.us P.O. Box 629 Giddings, Texas 78942 If you need a construction permit for a facility Phone 409/542-3691 that emits air contaminates, contact: www.agr.state.tx.us Texas Natural Resource Conservation Commis- Business Permits sion Operating Permit Division If you are in the debt collection business, contact 12100 Park 35 Circle Federal Trade Commission Austin, Texas 78753 Dallas Regional Office Mailing Address: 1999 Bryan St. Suite 2150 P.O. Box 13087 Dallas, Texas 75201-6808 Austin, TX 78711-3087 Phone 214/979-0213 Phone 512/239-1334 http://www.ftc.gov Fax 512/239-1070 http://www.tnrcc.state.tx.us If you need to register your weight or measuring device, contact: For a brewer’s permit, distiller’s license for alcoholic beverages, rectifier’s permit or Texas Department of Agriculture manufacturer’s permit, contact: Metrology Labs / Weights and Measures 119 Cumberland Rd. Texas Alcoholic Beverage Commission Austin, Texas 78704 Licensing Permits Division Phone 512/462-1441 P.O. Box 13127 Fax 512/475-1642 Austin, Texas 78711-3127 Phone 512/206-3333 A Guide to Texas Business Licenses and Permits Fax 512/206-3399 produced by the Texas Department of Economic www.tabc.state.tx.us Development offers detailed information about business permits. Professional Permits There are a large number of professional permits Environmental, Industrial, Manufacturing and issued by an equally large number of agencies. For Commercial Permits example, to obtain a permit as a licensed dietitian, There are certain permits necessary to operate contact: manufacturing, industrial and commercial busi- nesses. For instance, to obtain a registration for a Texas State Board of Examiners of Dietitians recycling facility contact: Texas Dept. of Health Dietitians Licensing 1100 W. 49th St. Texas Natural Resource Conservation Austin, Texas 78756-3183 Commission Phone 512/834-6601 38 Fax 512/834-6677 Business Information and Referral Specialists www.tdh.state.tx.us/yellow/d.htm P.O. Box 12728 Austin, Texas 78711 To obtain a social worker certificate, you can Phone 512/936-0082 apply by first contacting: Fax 512/936-0440 Phone 800/888-0511 Texas State Board of Social Workers Examiners www.tded.state.tx.us 1100 West 49th Street Austin, Texas 78756-3183 Phone 512/719-3521 Fax 512/834-6677 www.tdh.state.tx.us/yellow/s.htm

Transportation Permits There are numerous offices to contact for transportation permits, depending on the specific permit you need. For a specialized motor carrier certificate, a commercial vehicle registration (including all tow trucks) or a broker’s license, contact:

Texas Department of Transportation Motor Carrier Division P.O. Box 12984 Austin, TX 78711-2984 Phone 512/463-8585 Fax 512/465-3521 http://www.dot.state.tx.us

For a permit to transport used and scrap tire contact:

TNRCC Municipal Solid Waste Management Div. 12015 Park 35 Circle Austin, TX 78753 Mailing Address: P.O. Box 13087 Austin, Texas 78711 -3087 Phone 512/239-1000 Fax 512/239-6717

There are many more permits required for businesses. Refer to Texas Department of Eco- nomic Development, or Business Information and Referral Specialists at:

Texas Department of Economic Development 39 Chapter 6: Employee and Contract Labor Chapter 6: Employee and Contract Labor

When your business begins to grow, you may • Employer pays expenses incurred on the job need to expand your staff. Your first questions will be: Do you hire full- or part-time employees or do • No risk of loss is applicable to the worker. you hire subcontractors to perform specific projects (This refers to the recourse an employer has on an as- needed basis? regarding work performance. While an employer can fire an employee for inadequate Contract labor requires less paperwork, but keep work performance, an employer can’t legally in mind, there are important distinctions between force an employee to work without pay. With contract labor and employees. If you incorrectly a contractor, if the work is not performed classify your workers, you may end up paying some according to specification, the contractor big dollars to the IRS and the Texas Workforce could face legal action for breach of contract.) Commission (TWC). Most jobs are categorized as employer/employee Employee/employer relations typically display relationships. From TWC’s perspective, anyone one or more of these traits: who provides services for a business is presumed to be an employee until proven otherwise. Therefore, • Job training is necessary when you classify someone as contract labor, you are almost guilty of misclassification until proven • Employer holds supervision and payroll innocent. The following guidelines can help you responsibilities substantiate that your workers are independent contractors. • Employer sets work hours A contractor usually: • Workplace is restricted (that is, employee must work on site) • works by the project

• Employer defines employee’s work priorities • determines the tasks to be accomplished and the order in which they will be accomplished • Wages are paid by the hour or some type of salary arrangement 40 • establishes work hours • TWC Forms C-1 and C-3

• also works for others • IRS Form W-4 for each employee

• has own trade or business name • INS Form I-9

• is responsible for paying taxes resulting from • IRS Forms 941, 8109, 940 and W-2 compensation. TWC Form C-1 Besides these rules, answering this question TWC uses the Employer Status Report to should help you distinguish a contract laborer: determine if your business has incurred liability Does an employee within the company perform the under the Texas Unemployment Compensation same job? If the answer is yes, then the worker is Act. Every person or employing unit that operates most likely an employee. It is irrelevant that a business organization in Texas must file an initial someone only works part-time or that the job only C-1. TEC requires subsequent filings if the busi- lasts for a specific period (such as six weeks). For ness entity significantly changes its legal structure. example, if a female employee is on maternity leave It is a fairly easy form to complete. Keep a copy and someone is hired to fill-in during her absence, handy because much of the information will be that person is an employee, not a contract worker. requested on other forms. You can’t have two people doing the same work and classify them differently. TWC Form C-3 This quarterly report notifies TWC of the As you can see, the distinction between being an amount of taxable wages for each employee and the employee or a contractor is not black or white. total state unemployment taxes due. This tax Additionally, it’s not the theoretical relationship payment is made payable to TWC and is sent with described on paper that determines the correct the completed form. To fill out the form, you will status (employee or contractor), but the actual need each employee’s name, social security number day-to-day practice of the work. and total wages paid during the quarter.

It’s not a good idea to classify independent Form W-4 contractors as employees to avoid risk. And it’s an Ask all your employees to sign a completed and equally bad idea to classify employees as indepen- dated W-4. Keep these with your personnel files as dent contractors to avoid paperwork. If the TWC a record of each employee’s proper name, address and IRS determine that your contractors are and social security number. The W-4 also tells the employees, both agencies will quickly beat a path employer how many exemptions to consider when to your door to assess applicable back taxes, penal- withholding federal income tax. This form is also ties and interest. helpful should there be a dispute with the IRS or the employee. You can file Form SS-8 with the IRS, and they will classify the individuals in question. INS Form I-9 Another item for the personnel file is the Immi- Forms gration and Naturalization Services Form I-9. This paperwork ensures that employers do not hire For contract labor you must complete IRS Form illegal aliens. The form is not difficult to fill out, 1099-MISC. Refer to IRS Form XX for a descrip- but it must be completed within three working tion of contract labor. days after the employee begins work. Additionally, if you cannot obtain all the necessary documenta- If you decide to hire full- or part-time employee tion on the hire date, it must be submitted within the forms you will complete and file include: 41 21 days. This information can include any one of total year’s federal unemployment tax (FUTA) the following. liability for your company’s payroll. It differs from the TWC report in that wages are submitted in INS Support Documentation total, not per employee. Payment for FUTA is U.S. Citizen made to your bank using IRS Form 8109. Gener- United States Passport ally, you can take a credit against the FUTA tax for OR amounts you have paid into the state unemploy- Certificate of citizenship ment fund, but this credit is limited to 5.4 percent OR of taxable wages. Certificate of Naturalization OR IRS Form W-2 State issued driver’s license, ID or other official You’ve probably been on the receiving end of document with a photo this form. As an employer it is now your responsi- PLUS bility to report payroll information annually to the —original social security card Social Security Administration and to your em- OR ployees. —birth certificate with seal. NOTE: Owners of sole proprietorships and Foreign Nationals partnerships cannot be classified as employees. Alien Registration card with photo Owners of corporations can, however, and you OR should send these forms at the end of the year to Unexpired foreign passport with attached the Social Security Administration, not the IRS. authorization OR Other IRS Forms Unexpired INS Employment Authorization, PLUS If you need copies of other IRS forms, call 800/ —a state issued driver’s license 829-3676 or visit the IRS website at http:// OR www.irs.ustreas.gov and if you need tax assistance —ID or other official document with photo. call 800/829-1040. For hearing impaired call 800/ 829-4059. To order a CD ROM with current year The penalties for failing to comply with this and prior year tax forms call 212/512-1800 or visit requirement are high. The possibility of incurring http://www.access.gpo.gov/su_docs thousands of dollars in fines certainly justifies the extra trouble of compliance.

IRS Form 941 This quarterly report details the wages, federal income tax and social security tax applicable to your company’s payroll. It tells the IRS what your payroll tax liability was for the quarter and when it was due for payment.

NOTE: Your payroll deposits should be made payable to your bank using IRS Form 8109. You will find the schedule for making these deposits on the back of IRS Form 941.

IRS Form 940 This annual report to the IRS computes the 42 must supplyone-halfofthe neededcapital. financial institutionlendsis: ample, ageneralruleabout howmuchmoneya some conservativeandbasic guidelines.Forex- business oftaking risks;consequently, theyhave realize thatfinancialinstitutionsarenotinthe Institution Working withyourFinancial capital are: exhausting thisavenue,thetwopossiblesourcesof ness ofyouridea.Ifyoustillneedmoneyafter believe inyouandcanbeconvincedoftheworthi- sible sourceforfundingbecausetheyknowand tors orloans.Friendsandrelativesarealsoapos- funding topay yourbusinessbills. statement, youshouldknowifneedadditional forma incomestatement andfillingoutacashflow Before yougetexcitedaboutborrowingmoney, Additional capital cancomefromprivateinves- As discussedinChapter2,afterpreparing apro A bank loan guaranteedbytheSmallBusi- • A traditionalcommercialloan,or • ness Administration. the owners/investors Chapter 7:FinancingOptions 43 They areknownasthe you mustthensatisfysomecommonloancriteria. can comeupwithatleast50percentofthemoney, if thebusinessfails. the lenderknowsthatyouhaveagreatdealtolose expects youtoinvestatleast$25,000. That way $50,000 instart-up capital, afinancialinstitution as accountsreceivable, inventoryandequipment) gamut fromyourbusiness’ operationalassets (such protect theinterests ofthelender.” This coversthe itis“propertypledgedbyaborrowerto Webster’s, cism totheprojectionviability. growth. These factorsgivecredenceoraddskepti- industry trendsandanyanticipated industry well, suchasthestate ofthecurrenteconomy, consider.) Otherareascaninfluence capacityas obviously don’thavehistoricalinformationto spective (projections)basis.(Start-up businesses (financial statements, tax returns,etc.)andpro- Capacity shouldbedemonstratedonahistorical repay theloanbasedonbusiness’ cashflow. eral, Credit,CharacterandConditions. Assuming thatyouandyourinvestors/partners What thismeansisthatifyourbusinessneeds Collateral is Capacity represents the customer’s abilityto represents thecustomer’s a familiarterm. As definedby Five C’s: Capacity, Collat-

Chapter 7: Financing Options to certificates of deposit (CDs)—all of which may nanced with short term debt. Assets such as equip- be used as security against borrowed money. ment, vehicles, and real estate should be financed with long term debt. A term note is most often 1 Credit answers the question: Does and will the to 7 years of length and requires monthly payments customer pay bills on time. Lenders normally of principle and interest. Financing cash and investigate both the company’s and the owner’s past inventory with long term debt increases your credit history. Both need to be spotless. If there are interest expense, and financing high dollar amount blemishes, lessen the impact by warning the loan equipment on a line of credit makes your monthly officer and giving a logical, defendable explanation payments of principle and interest very large. To up-front. No one likes to be surprised with this give a logical reason for making the loan, describe kind of information. how you will use the loan proceeds.

Character may be the most subjective ingredient The Loan Request Package within the formula. It encompasses the lender’s perceptions and analysis of the borrower’s reputa- Your loan request should also describe how you tion and integrity, background and experience, and will repay the lender. This is best illustrated with financial sophistication, involvement and persis- current financial statements and projections. Your tence. loan request package should include balance sheets and income statements for the past three years, Here’s one formula you can count on: Loans are company tax returns and your personal financial more likely to be made even on marginal transac- statement. tions if the lender believes in the customer. If you are starting a business, you should create Conditions are the terms of the loan and include: pro forma financial statements (projected balance sheet and income statements) for at least three full • loan amount, amortization and renewal date years of operation. When forecasting a pro forma if you are seeking a revolving or short-term financial statement for an existing company or a loan projection for a new company, you should show the business’ breakeven point (as discussed in • interest rate (if floating, based on what and Chapter 2). adjusted when) Your request can also gain credibility if you • credit policies established by the financial prepare best- and worst-case scenarios. This shows institution. For example, advances on ac- the lender that you have considered all aspects of counts receivable may not exceed 75 percent your loan request. Supporting documentation for of the current amount receivables balance the pro forma financial statement or projections (those less than 60 days old). will also help. To help the lender evaluate your Five C’s, you Your loan request should also include: should prepare a loan request that builds an objec- tive case as to why your business will succeed. It • articles of incorporation, bylaws, corporate should also offer a logical reason as to why the resolutions, partnership agreements and/or lender should make the loan. assumed name certificates

Your business plan is a good starting place. It • resumes of business’ owners and managers gives an in-depth explanation of your business and why it will be successful. Discuss the type or types • business plan of financing you need. Assets such as cash, ac- counts receivable, and inventory should be fi- • current financial statements for the past 90 44 days and the past three fiscal years After you assemble the supporting paperwork, tie the loan package together with a cover letter. • tax returns for the past three years This letter should be a synopsis of the loan request and basically propose the transaction to the lender. • a clear description of the loan’s intended Clearly state your plans and how this loan will purpose allow you to succeed.

• a list of the company’s assets and debts and a Now you are ready to make appointments with list of assets that can be used as collateral financial institutions. Don’t choose just one lender. Talk to several. Remember, when selecting your • current financial statements of any related lender, you are also selecting your banker. You want businesses in which the business owners are to choose a banker you are comfortable with and involved who has the products and services you need for • owner’s financial statements and those of your business. anyone who is guaranteeing the loan Don’t be discouraged if the first banker turns • list of the top three major customers or you down. If you have a start-up business or a prospective customers young company, many lenders may be uncomfort- able with your loan proposal. Most likely, you will • list of at least three current suppliers and have to contact several lenders before you find one three current creditors or credit references that meets your needs.

• appraisals on fixed assets and real estate SBA Guaranteed Loans

• photographs of the operating facility and A bank loan guaranteed by the U.S. Small major equipment Business Administration is similar to a traditional commercial loan. Both loans are processed and • copies of current contracts funded by and repaid to financial institutions, but they differ in that the government guarantees • accounts receivable aging for all accounts repayment of some percentage of an SBA loan. If receivable, noting any potential bad debts the debtor defaults on an SBA loan, the govern- • listing and valuation of any inventory listed ment pays the guaranteed portion after liquidating on financial statements. the assets you pledged.

NOTE: The less information the lender must An SBA loan gives the bank a second source of ask for, the more “character” (Five C’s) you earn. repayment. However, the financial institution often uses the same or similar loan criteria for both SBA Environmental issues are a growing concern, and loans and traditional commercial bank loans. many financial institutions expect you to address the disposal of environmentally sensitive products A financial institution avoids making loans or waste. This is especially true when real estate is without collateral. The borrower must have a good involved. If you default on the loan and the lender idea, good credit and a demonstrated ability to takes over property, the lender may not only repay the loan. With an SBA loan, however, a become responsible for its clean-up, but also may financial institution may relax some portion of its be held liable for damages associated with the lending criteria. For example, the financial institu- contamination. tion may offer a longer term for an SBA guaran- teed loan.

45 A financial institution may recommend a loan to Mailing Address: the SBA if the business has had an irregular earning P.O. Box 12847 pattern. An SBA loan may also be recommended Austin, TX 78711 when a business’ collateral differs from what the http://www.agr.state.tx.us institution normally lends against or if the amount Type of Program: Linked Deposit Program, of equity in the company is less than the lending Young Farmer Loan Guarantee Program, institution’s typical criteria for granting the re- Farm and Ranch Program, Rural Develop- quested loan amount. ment Finance Program and the Rural Devel- opment Finance Program: Municipal Finance An SBA guaranteed loan is advantageous for the Option. financial institution because it does not count against its reserve requirement. As a result, the EX-IM BANK financial institution can make more SBA loans Southwest than traditional commercial loans. 1880 South Dairy Ashford II, Suite 585 Houston, TX 77077 It is important to understand, SBA guaranteed Phone 281/721-0465 loans are not government grants or giveaway Fax 281/679-0156 programs. Financial institutions recommend the www.exim.gov loans and the SBA approves them. Two approvals must be received before the SBA loan can close— Type of Program: Export-related working capital one from the financial institution and one from the loans SBA. Venture Capital Other Financing Resources There are several directories of institutional venture capital firms in the United States and the Many counties and cities in Texas have funding types of investments they seek. One or more of sources that may be available to you. Your eligibil- these may be available at your local library. Ex- ity for these funds depends on many variables, such amples of these are Pratt’s Venture Capital Guide as your business’ size, industry and the products published by Venture Economics Inc. and the you produce or services you provide. For more Venture Capital Directory published by Online information, contact your local county or city Publishing. officials or the local chamber of commerce. Private Investors Lists of sources of capital The network listed below provides a U.S. Small Business Administration cost-effective method for small businesses to gain Regional Office Phone: 800/827-5722 exposure for their business investment opportuni- ties. It is composed of investors seeking opportuni- Department of Agriculture ties in small businesses in Texas. Phone: 202/720/2791 1400 Independence Ave. SW The Capital Network Washington, DC 20250 3925 West Braker Ln., Suite 406 www.usda.gov Austin, Texas 78759 www.rerdev.usda.gov Phone 512/305-0826 www.usda.gov/mission.rd.htm Fax 512/305-0826 www.thecapitalnetwork.com Texas Department of Agriculture Texas Agricultural Finance Authority Phone 877/428/7848 46 able fromthe IRS. a partnership. Explanatorypublicationsare avail- proprietors, self-employed farmersandmembersof to SocialSecurity. Itisgenerallypaid bysole to self-employedworkers andistheircontribution listed inyourphonebookor800/829-1040. system. Formoreinformationcallthelocaloffices read publicationstohelpyouunderstand thetax the typeofbusiness. The IRShasexcellent,easyto Separate formsorschedulesapplydependingon annual returnwiththeInternalRevenueService. Federal authorities inyourarea. clearly understand yourtax liabilities,calltaxing locale holdsdifferent taxing requirements. To below. Localtaxes arenotaddressedbecauseeach federal organizationsandkeytaxes ispresented potential taxes, butasummaryofmajorstateand tion. This bookletcannotpresentanentirelistof with severalagenciestoobtain completeinforma- taxing authoritiesexistandyoushouldconsult business shouldpay. Manyfederal, stateandlocal ing abusinessisdeterminingthetypeoftaxes your Federal Self-EmploymentTax. Federal IncomeTax. One oftheresponsibilitiesstarting oroperat- Everybusinessmustfilean Chapter 8: Tax Responsibilities This taxapplies This 47 of “AdditionalLegalPaperwork.” number aregiveninChapter 4undertheheading Instructions foracquiring atax identification should appearonallfederal businesstaxreturns. requires ataxidentificationnumber. This number ture. of excisetaxesandspecificinformationlitera- tobacco andguns.AsktheIRSforacompletelist gasohol; andtaxes oncertain luxuryitems,alcohol, transportation; fueltaxes ongasoline,dieseland cals; taxesontelephonecommunicationsandair on crude,petroleumproductsandcertain chemi- Several commontaxesincludeenvironmental taxes from manufacturersandsellersofcertain products. Supplemental TaxGuide. Tax Guide) IRS, askforPublication15, and payment ofthesetaxes. Whencontacting the regulations andguidelinesregardingthecollection ployment taxes(FUTA). The IRShasspecificrules, security (FICA),Medicaretaxes andfederalunem- include federalincometaxwithholding,social has employeesusuallypays thesetaxes. They Tax identificationnumber. Federal ExciseTaxes. Federal EmploymentTaxes. and Publication15-A Employer’s These taxes arecollected Circular E(Employer’s Eachbusiness Any businessthat

Chapter 8: Tax Responsibilities State with bookkeeping services to ensure that you pay the lowest required income and payroll taxes. State Sales Tax. Most products and many Businesses that have difficulties paying taxes can services are subject to sales tax. Each business must receive expert, professional advice on how to collect the tax and file a sales tax return on a become current on tax liabilities. Based on your regular basis. To obtain a sales tax permit and filing business plan, CPA’s can estimate your future information, contact: payroll and income taxes, as well as your personal tax liability. Taxes affect your cash flow significantly Comptroller of Public Accounts and thus to truly control your business finances, LBJ State Office Building tax planning is very important. 111 East 17th Street Austin, Texas 78714 IRS Workshops

The comptroller also has offices in major cities In addition to assistance from its local office, the Call 800/ 252-5555 for more information. IRS sponsors tax workshops to help the self-employed and the small business owner. The State Franchise Tax. A state franchise tax applies workshops explain how federal taxes relate to to all corporations with representation in Texas. individual businesses. The tax is calculated based on taxable capital assets and taxable earned surplus, paying the greater of Topics include: the two. To obtain information, contact the comp- troller of public accounts listed above. • an overview of the IRS and the kinds of information and help it provides small busi- Unemployment Tax. Most businesses in Texas nesses. are liable for state and federal unemployment tax • an orientation to business taxes and how to based on a formula that uses employee wages as a identify the relationship between business key factor. Start-up entrepreneurs should contact organizations and federal taxes. the TWC for state reporting requirements and the • a discussion of record keeping with an Internal Revenue Service for federal information. emphasis on the importance of tracing business income and expenses. Local • an in-depth review of the employer’s respon- sibility for withholding income, social secu- All business owners, regardless of the company’s rity and federal unemployment taxes, and a legal form, should contact their local County discussion of the appropriate tax returns. Appraisal District soon after beginning operations. • how to deposit federal taxes using Federal Tax Most businesses will be liable for taxes on both Deposit Coupons. personal and real property. The taxes are assessed • employer-employee relationship. by individual taxing units (county, city, school district, etc.) based on information maintained by For more information regarding these work- the appraisal district. If your county does not have shops, call or write the office below: an appraisal district, contact various local taxing units. Houston 8701 S. Gessner Independent Certified Public Accountants Stop 6610H-AL Assistance A certified public accountant can be a Houston, Texas 77074 great resource to the small business person. CPA’s Phone 281/721-7070 can prepare all federal, state, and local tax returns or 800/829-3676 required by the government. CPA’s can also help 48 Directory of Services 5 Brazosport College SBDC, 11 Lone Star College System SBDC 1 University of Houston Lake Jackson 832/813-6673 Small Business 979/230-3380 www.sbdc.lonestar.edu Development Center www.brazosportcollegesbdc.com 713/752-8400 12 Sam Houston State University www.sbdc.uh.edu 6 Galveston County SBDC SBDC, Huntsville 409/933-1414 936/294-3737 SPECIALTY ASSISTANCE www.gcsbdc.com www.shsu.edu/~sbd_www/ Government Procurement Procurement Technical Assistance Center 7 Lamar University SBDC, Beaumont 13 San Jacinto College SBDC, 713/752-8477 409/880-2367 East Harris and Northern www.lamar.edu/sbdc Brazoria Counties SBDC Network 281/485-5214 2 Angelina College SBDC, 8 Lamar State College SBDC, www.sanjac.edu/sbdc Lufkin Port Arthur 936/633-5400 409/984-6531 14 University of Houston www.angelina.edu/sbdc/cs www.portarthur.com/sbdc Fort Bend SBDC 281/499-9787 3 Blinn College SBDC, Brenham 9 Lee College SBDC, Baytown 979/830-4137 281/425-6309 15 Prairie View A&M University www.blinn.edu/sbdc www.lee.edu/sbdc SBDC 936/261-9242 4 Brazos Valley SBDC, Bryan/ 10 University of Houston www.wallercountysbdc.org College Station Coastal Plains SBDC 979/260-5222 Matagorda and Wharton Counties www.bvsbdc.org 979/244-8466

The UH SBDC Network serves 32 counties in Southeast Texas. The UH SBDC Network is a program of the UH CT Bauer College of Business and a resource partner of the US Small Business Administration. Funded in part through a cooperative agreement with the U.S. Small Business Administration. All opinions, conclusions or recommendations expressed are those of the author(s) and do not necessarily reflect the views of the SBA. SBDC programs are nondiscriminatory and available to individuals with disabilities. The University of Houston is an EEO/AA institution. Reasonable accommodations for persons with disabilities will be made if requested at least two weeks in advance.