If I'm thinking of starting a business, what should I do first?
The first thing is to ask yourself, “Do I have what it takes to be an entrepreneur?” The Start Smart seminar is a good place to start learning about what it takes to be an entrepreneur.
The next step is to get as much information as you can on the feasibility of your idea and on the real experience of starting and managing any business. You can do this by:
- Accessing business publications and data from the library
- Taking seminars and workshops
- Speaking to trade or professional groups which represent your chosen industry
- Consulting with people who are already in the same or similar line of business
- Seeking advice from professional counselors like the SBDC.
Can I operate my business from home?
Many small business enterprises are operated successfully out of homes. However, remember that all zoning, registration, tax and other laws still apply to your home-based business.
What kind of registration and licenses are required to start my business?
While each state, county, or locality may have specific requirements, here are some of the basic licenses and registrations a new business will need:
Local - A business license from your city, town or county, may be required, and you must meet zoning laws, building codes, and similar regulations. You should also register your fictitious business name.
Virginia - You'll need to establish your identity for sales and use taxes, payroll taxes, and other requirements. In some occupations, specific licenses are needed. If you wish to creat an LLC, S-Corp, or C-Corp, you will need to register with the Commonwealth.
Federal - Obtain your Federal ID Number (also called Employer's Identification Number (EIN). This is a free service provided by the IRS, which also provides numerous business publications and information sheets.
See the SV SBDC Checklist for Starting a Business for a details and a complete list of forms and links to appropriate offices.
What are the legal or tax related issues that I need to consider?
You need to decide which form of organization (sole proprietorship, partnership, limited liability company, or corporation) will be best for your business. Each form has its advantages and disadvantages. The one you should use depends on your circumstances, including your financial condition, the line of business you are entering, the number of employees, the risk involved, and your tax situation.
Likewise, the tax laws and their applicability differ from business to business and have a major impact on your business and personal finances.
Consult with the SBDC, your tax accountant, and/or attorney if needed.
What kind of insurance is needed for a small business?
There are four types of insurance that are generally considered essential for small businesses.
- Fire insurance will compensate you for the loss of and damage to your business property by fire.
- Liability insurance will help protect you against lawsuits for physical damages done to someone on your property and for liabilities arising from the use of the products or services your company sells. In some cases, both fire and liability insurance may be required rather than optional, so check with your insurance agent to be sure.
- Auto insurance, either private or business, is required by law for any vehicle used for business purposes.
- Worker compensation may be required in Virginia if you have 1 or more employees.
Before buying any insurance, consider the risks that should be covered, compare costs from the different companies, and get professional advice from an insurance agent.
What is a business plan?
A business plan describes your business and identifies your goals.
Serving as your firm's resume, it identifies the products and services you will sell, the customers to whom you will sell, the production, management, and marketing activities needed to produce your products, and the projected profit or loss that will result from your efforts. It helps you allocate resources properly, handle unforeseen complications, and make the right decisions.
A good business plan is a crucial part of any loan package. A lender needs to see evidence of your research, a plan of action, and your knowledge and experience to operate the business.
How much money will I need to get started?
One of the leading causes of business failure is insufficient start-up capital. You should plan to have enough money on hand to cover operating expenses for at least a year. These expenses include start-up costs, your salary as the owner, working capital until revenues support the business, and money to repay your loans. Work closely with your accountant or SBDC Business Advisor to estimate your cash flow needs.
If you need to borrow money to get started, expect to provide at least 20% equity (money down) in your business. Some lenders may require more. Equity is your ownership in the business that is free and clear of debt.
How do I finance my business?
Committing your own funds toward the financing is the first step. It is the best indicator of how serious you are about your business. Risking your own money gives confidence for others to invest in your business. You may want to consider a partner for additional financing.
Bank financing is possible if you can show evidence of sound business potential. Banks vary substantially in their lending practices. You should understand a bank's lending guidelines before applying for a loan.
Other loan sources include commercial finance companies, venture capital firms, local development companies and life insurance companies. Trade credit, selling stock, and leasing are alternatives to borrowing. Ask your local SBDC for information about your options, and do not make financial commitments before knowing your sources of funds.
Will the SBA (Small Business Administration) loan money to me?
The SBA has numerous loan programs to assist small businesses. It is important to note, however, that the SBA is primarily a guarantor of loans made by private banks and other institutions. If your loan proposal is considered too risky for the bank, you or the lender may request a review by the SBA for a guaranteed loan.
SBA guaranteed loans are made and processed by a bank, with the SBA guaranteeing up to 80 percent of the loan. Interest rates and repayment terms are negotiated between you and the lending institution. SBA does limit the interest rate the lender can charge and there is a small guaranty fee. Your SBDC business counselor can provide additional details when you discuss your particular business venture.
Are there any grants available for my start-up business?
Generally speaking, grants given to business start-ups are very rare. An exception may be for a high technology business or for businesses producing products that can be used by certain agencies or departments involved in our nation's defense.
Should I buy a franchise?
Franchising can be a good option for people with limited experience. The franchise will have pre-set guidelines and a structured approach for a business opportunity. Success in business is not guaranteed, and one should never rush into franchising before a thorough investigation, obtaining legal advice, and completing a business plan.
How do I know if I have been provided with a legitimate "business opportunity"?
Ask questions before moving ahead with any business opportunity:
Finally, what exactly is a "small” business?
While the term "small business" is sometimes defined by number of employees (varying from 1-500) or amount of sales (under $1 million), the SBDC applies no stringent criteria to those it is willing to assist.
SBDC services are most beneficial to businesses where one or two owners find themselves wearing many hats – marketing, finance, human resources, strategic planning – but they know they cannot afford to lose the focus on their core business. The SBDC can save you time, get answers to your questions, and efficiently link you to resources or other businesses.