STARTING & FINANCING A SMALL BUSINESS Sponsored by: Small Business Development Center Accion Texas U.S. Small Business Administration J.P. Morgan Chase Bank Thursday, January 5, 2006

About the SBDC Roque R. Segura, BBA, MA Director The Small Business Development Center El Paso Community College

Regional SBDC Program Regional & Field Offices San Antonio El Paso Edinburg Victoria Laredo Corpus Christi San Angelo San Marcos/Austin Alpine Eagle Pass Specialty Centers Technology International Trade SBDCNet

SBDC Program Services Confidential Advising Technical Assistance Training Resource Information Research Website

Assistance Project Feasibility New Business Start-up Business Planning SBA Financing & Loan Packaging Minority Enterprise Certification Marketing & Sales Development Business Analysis and Forecasting Management & Problem-solving

Small Business Management Institute ( 48-hour Training Program) Strategic Planning Marketing Administration & Personnel Finance & Accounting Business & Contract Law Business Resources

ESSENTIALS IN STARTING A BUSINESS Ms. Olga M. Tavárez, MBA, CBA Certified Business Advisor Small Business Development Center Thursday, January 5, 2006

AGENDA Business formation (determine the legal structure) Business permits and registrations Market research Market planning & location of the business Start-up costs and owner investment Bookkeeping system & taxes Financial Statements Business plan SBA Financing Meeting with an SBDC advisor

Business Formation Selecting a Business Structure Sole Proprietorship (One owner) Partnership (Two or more owners) Corporation (Stockholders) Limited Liability Company (One or more owners)

Registrations & Permits Assumed Name Registration Employer Identification Number (E.I.N.) Texas Sales & Use Tax Permit State Unemployment Tax Registration I-9 Employee Eligibility Verification Business Personal Property Tax – CAD Other Business Specific Permits

Other Business Specific Permit Types Home Occupation Permit – EP County Child Care Business Licensing - Texas Beer, Wine/Alcohol Beverages - Texas Food Handler’s Permit – EP County Texas Motor Carrier Licensing - Texas Environmental Compliance – Texas Nursery/Floral – EP County Others

Market Research Market Research can help you identify: Industry trends Target markets Needs and wants of customers Purchasing behavior Strengths and weakness of competitors Levels of customer satisfaction

Kinds of Research Primary Research (surveys) Secondary Research (secondary sources) Secondary Sources Industry & trade associations Government publications Universities & Libraries Research bureaus Internet

Purpose of Market Planning Know your potential customers Determine your market share Determine who your major competitors are Determine your sales promotion Determine your business location Develop your overall marketing strategy and budget

Start-up Costs Merchandise Inventory Wages Rent Equipment and furniture Tools Vehicles Licenses & permits Insurance Supplies Advertising & promotion Deposits (Telephone & Utilities) Initial Working Capital

Bookkeeping System A bookkeeping system is vital to tracking the financial activities of the business and complying with tax obligations to governmental entities. Recommended: Dome Simplified Monthly Bookkeeping Record Cost: $8.99 Recommended: Intuit’s QuickBooks Simple Start Edition $99.95 QuickBooks: Pro 2006 $199.95

Financial Statements Profit or Loss Statement Balance Sheet Cash Flow Statement Financial statements are designed to show both how your business has performed over a specific period of time and what the status of your business is at a given point. For financial statements to be beneficial to you in managing your business, they must be produced on a monthly basis.

Profit or Loss Statement Sales Cost of goods sold Gross profit margin Expenses Net Income (Profit or loss) Refer to Handout

Balance Sheet Assets Liabilities Capital (Net Worth) Assets = Liabilities + Capital Refer to Handout

Cash Flow Statement The cash flow statement is the most important financial tool for evaluating your business. It informs you about where the cash in your business came from and where it went. Over time, a company’s profits are of little value if they are not accompanied by positive net cash flow. Refer to Handout

Importance of Business Planning Provides a road map for your future Determines priorities for allocating resources Helps attract and keep key employees Helps obtain financing Helps obtain large contracts and strategic alliances and customers

Business Plan Contents Title Page Executive Summary Description of the Business Market Analysis Sales Strategy Production Plan Management Financial Plan (Forecast) Appendices/Exhibits

U. S. Small Business Administration Why SBA Financing U. S. Small Business Administration Why SBA Financing Longer term period to repay loan Limited interest rates lender can charge Lender is guaranteed loan up to 75% SBA provides technical assistance to small businesses thru its partners

Establishing a Relationship with Your Lender Get to know your banker Invite the banker to your business Be prepared to meet with the banker Keep the banker informed about your business Be responsible with your credit

Types of Financing Debt Financing – loans Equity Financing – owner investment or other equity investment

What the lender review Credit – credit history Character – commitment, education, exp. Cash flow - repayment ability Collateral – security for the loan Conditions – state of economy, timing, preparation, past history of business, business type

SBA Guaranty Loans 7(a) Loan SBA Express SBA Community Express Refer to the SBA Loan Programs Matrix Handout

OWNER INVESTMENT 25% OF Total Project Example Total Project: $100,000 Borrower 25,000 (25%) SBA/Bank Loan 75,000 (75%)

SBA Guaranty Loan Loan Amount $75,000 Use of Proceeds: Purchase New Equip. Term of Loan: 6 years Prime Rate: 7.0% SBA Points: 2.75% Guaranty Fee: 2%

SBA Loan Computation $75,000 Loan x 85% GR = $63,750 guaranty amount $63,750 x 2% GFR = $1,275 guaranty fee $75,000 Loan + $1,275 Fee = $76,275 Total Loan 9.25%, 6-year maturity Amortization: 72 months Monthly Loan Payment = $1, Total Interest = $23,400.32

To Summarize Business Formation (Legal Structure) Business Registrations and Permits Research your market (customer base) Develop a Business Plan Finance the Capital Requirement of the Business: Owner Investment 25% Bank/SBA Loan 75%

Three Major Reasons Why Businesses Fail Poor Planning Poor Management Undercapitalization Don’t let this happen to you! Small Businesses don’t plan to fail, they just fail to plan.

Meeting with SBDC Advisor Setting the Appointment Request for Counseling (SBA 641) The initial session one-on-one with an SBDC Advisor is between one and two hours. Some initial sessions may take longer depending on the client project. Other sessions as needed may be scheduled with the advisor. For projects that require more than 5 hours, a project action agreement will prepared regarding technical assistance and related services. For Appointments call:

SBDC Main Office 359 Lomaland Drive, Suite 535 El Paso, TX Voice: Downtown Office Greater El Paso Chamber of Commerce 10 Civic Center Plaza El Paso, TX Vocie: Website:

Financing the Business - Commercial Lending Pedro Galicia Vice President of Lending JP Morgan Chase Bank

ACCION TEXAS El Paso Elvira Valles Loan Officer Fax:

EVALUATION QUESTIONNAIRE THANK YOU!