A Guide to Owning and Operating a Small Businessin New York State

YourBusiness

www.nylovessmallbiz.com

The purpose of this book is to providegeneral business information for anyoneconsidering the start-up or expansion of asmall business in New York State. It is notintended to be an exhaustive discussion ofthe laws of New York State, since legalrequirements may change from time totime and the application of specific laws toindividual cases may vary.

Contents

CHAPTER 1: Foundations for Success 1

CHAPTER 2: Mapping a Strategy 6

CHAPTER 3: Financing Your Venture 13

CHAPTER 4: Selling Yourself 18

CHAPTER 5: Keeping the Books 25

CHAPTER 6: Computer Connections 32

CHAPTER 7: Government Regulations 35

Glossary 42

Appendix A: Supplementary Reading 44

Appendix B: Trade Associations for

Selected Businesses 44

New York State Map 48

International Map 49

A Guide To Owning andOperating a Small Businessin New York State

You have always wanted to do it. You’vethought about it, dreamt about it, discussedit with family and friends, perhaps even donesome research on the subject. Now you’vedecided it’s time to go ahead and do it.You want to open your own small business.Each year, thousands of New Yorkers followtheir dreams and tackle the challenges ofentrepreneurship. For the purposes of thispublication, a small business is one that isresident in this state, independently ownedand operated, not dominant in its field andemploys 100 or fewer persons. Thesebusinesses are a vital part of the economicpicture in New York State and across thenation.Opening your own business is an excitingjourney that can provide lifelongsatisfaction. But it also entails making somechoices that will deeply affect you and thepeople around you. That’s why it’s importantto get all the information you can beforeyou start.This guidebook was prepared to help youget started on the road to successfulentrepreneurship and keep you pointed inthe right direction. It gives you informationabout everything from planning andfinancing a business to marketing, keepingrecords and understanding governmentregulations. It also contains what you need toknow about expanding an existing business.In addition to providing a solid overview ofsmall business ownership, this book is areference guide to the many programs andresources that are available to new businessowners. The chapters follow the sequenceof decisions and actions that mostentrepreneurs go through, beginning withchoosing and organizing a business, whichis covered in Chapter 1.Chapter 2 takes you step-by-step throughthe development of a complete businessplan, which is critical for success. Once aplan is established, you can begin to look atfinancing, which is covered in Chapter 3.Your continued success will depend to a great extent on marketing, which isdiscussed in Chapter 4. In Chapter 5, youwill find a review of the records you need tomaintain to manage your business andmeet legal requirements, while Chapter 6looks at information systems andtechnology that can help you organize andstore these records.

Chapter 7 is devoted to governmentregulations, including licensing and permits, sales tax, insurance and obligationsto employees. The last few pages contain aglossary, bibliography, and a reference guideto trade associations. Owning a business is one of life’s greatestchallenges. The rewards come from thesatisfaction of having accomplishedsomething by yourself, of being able toshape your own destiny, create a goingconcern and contribute to your community.Many people who take this road wonderwhy they didn’t do it sooner.You’ve always wanted to start your ownbusiness. In fact, you can’t imagine not doingit. With the right planning, determination andresources, you can. Whether you’re thinkingof opening a bakery or a bookstore, a travelagency or an electronics repair center, thisguidebook will help you build a solidfoundation for success.

Are You Ready?Studies show that most successfulentrepreneurs share some key traits. Theyare usually organized, determined peoplewho have a strong sense of responsibility,are not afraid to make decisions ormistakes, work well with other people andenjoy the art of selling. Here’s a look atsome of those traits.Organizational ability: Small businessowners must pay strict attention to details,be self-disciplined and use their timeefficiently. They must be able to payattention to employees, customers, salesand expenses — all at the same time. Theymust be able to pay bills and wages on timeand maintain a budget to avoid the rollercoaster of having surplus funds one monthand a shortage the next.

Sense of responsibility: Small businessowners are completely responsible for whathappens to their business. Long after othershave gone home, they may have to stay onthe job tending to any number of details —getting books in order, going over inventory,rearranging stock, meeting clients or seeingthat repairs are made.

Determination: The most successful smallbusiness owners not only want to succeed,they are determined to do so. They have theability to adjust rapidly to change, learnquickly, recognize and correct mistakes,

CHAPTER 1

Foundations For Success

think creatively, be enterprising andresourceful, handle discouragement anddevelop favorable solutions to everydayproblems. They also realize the importanceof taking risks.

Decisiveness: Small business owners mustmake many decisions, and often make themquickly. Some entrepreneurs come by thatability naturally; others learn throughexperience. The best decision-makersconsider all the choices open to them, usethat knowledge judiciously and don’tsecond-guess themselves once a decisionhas been made. They realize that makingmistakes is part of the process, and theyforge ahead with new decisions despitesetbacks.

People skills: Small business owners mustget along with people, understand theirneeds and inspire their confidence. Theyrealize that courtesy and understanding arean important part of dealing withcustomers, suppliers, bankers and otherswho play a key role in their business.

Marketing: Marketing and selling are a partof operating all businesses, frommanufacturing to the service trades. Whilesome people are naturally adept at salesskills, others work hard to develop a sixthsense for marketing know-how andopportunities, taking advantage of themany books, courses and seminars availableto them.

Assessing YourResourcesYou’ve decided you’re ready to strike out onyour own. Now it’s time to look at theresources available to you as you begin tobuild a solid foundation for success.

Education and information: In today’sincreasingly global economy, education isessential for the business person. In additionto a good general education, you may wantto consider taking specialized courses toenhance your working knowledge offinancial and other pertinent matters. NewYork State has many fine learninginstitutions, including private and Stateuniversities, local community colleges,vocational schools, adult education centersand job training programs, that offer a rangeof business programs and technical courses.

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It is also helpful to consult books andbusiness and trade magazines on a regularbasis to keep up with current news andtrends in your industry. In general, the moreyou know about the business before youstart, the greater your chances for success.Often, the most successful entrepreneursare people who have worked for years forsomeone else in a particular line of businessand who finally decide they know the ropeswell enough to leave their employer andstart up a similar operation.

Capital: Money invested in a business iscalled capital. Before you start yourbusiness, you must identify sources ofmoney for equipment, supplies and day-to-day operating expenses, and plan inadvance to have it available when you’llneed it. Successful entrepreneurs plan theircash flow at least a year ahead, and manycarry out their projections two to five yearsin advance. Insufficient start-up money, orunder-capitalization, is one of the majorreasons half of all small businesses failduring the first two years.

Professional assistance: Building a successful business means relying on others for support and advice. There is a wide range of resources, both public and private, that can offer the support you need. Government agencies such asEmpire State Development and the U.S.Small Business Administration can provideguidance on everything from obtaininggovernment contracts to exportingmerchandise. In some cases, they can alsohelp secure loans. Professional advisors can assist withplanning and save you money in the longrun. A lawyer, for instance, can help you buyor sell a business, formulate a legal structurefor your business, negotiate with yourlandlord or financial institution, write apersonnel policy and resolve conflicts thatmay arise. An accountant can help reviewyour start-up costs, prepare and analyzecash flow statements, prepare creditapplications, set up a bookkeeping systemand prepare tax returns.You may want to consult a banker for information about how to make youroperation more profitable or extend creditto customers, while an insurance agent canhelp you determine what kinds of insurancecoverage you will need and the best policyfor your business. For information on trends in your field,comparative operating figures and thelatest marketing strategies, you may findlocal or national trade associations helpful.

Choosing Your BusinessThere are several options to consider whendeciding what kind of business toundertake. You can sell a product or aservice or a combination of the two. Youcan purchase a new business or an existingone, and run it by yourself or with a partner.Whatever you ultimately decide, it isimportant to take the time to examine allthe choices.

GENERAL CONSIDERATIONSIt is wise to choose a field in which you havesome prior knowledge. If you go into abusiness that is completely unfamiliar, youwill be competing with experiencedprofessionals who already know things itmay take you years to learn. There areprobably some businesses you can startalmost immediately, provided you havesufficient capital, but others will require thatyou complete months or even years oftraining.Prior experience is important, but do not neglect your personal interests.Initially, you are likely to be working 10 to 15hours a day, five to seven days a week tomake your operation a success. With thebusiness taking up that much of your life, it isimportant for your mental and physicalhealth that you like what you are doing.Investigate the long-term outlook for theindustries that interest you. Look foropportunities in businesses where expansioncan be expected. Surveys by trade groups,government and other reputableorganizations are a good place to findbusinesses that are ripe for development.You can get this information by contactingtrade associations, State University of NewYork Small Business Development Centers(see Chapter 2) and libraries.As you look at different businesses, considerconsumer needs you can fill. You should make sure there is a market foryour products and services before youcommit. Stay away from overcrowded fields.While many fields may offer goodopportunities in general, too manybusinesses that offer the same thing in thesame area may be a prescription for failure.Survey the people who are likely to be yourcustomers to find out what they want andhow much they are willing to pay. This maybe as simple as questioning friends andacquaintances or as sophisticated as aselective telephone inquiry. If you decide todo a telephone survey, the Polk CityDirectory, available at most public libraries, isan excellent source for such data as names,streets and area codes. The amount of capital you have available willalso influence your decision. You may find an

attractive business opportunity but discoverthat you do not have enough money tomake it work. If that is the case, keep looking.A business is practical only if you havesufficient capital to keep it going until theprofits are adequate to support the business.Finally, get a feel for the business and socialclimates in the community where you willset up your operation. Talk with localbusiness people and professionals, includingbankers, lawyers and real estate brokers.Contact or consider joining the chamber ofcommerce and other business associationsbefore you start your operation.New York State actively promotes a healthy business climate, but each community is different. Take your time inchoosing a location, particularly if thecommunity is new to you. Study the long-term population and business trends in theregion, the town and the neighborhoodwhere you might locate.

BUSINESS OPTIONSThere are three basic ways to go intobusiness for yourself — start from scratch,buy or inherit, or buy a franchise.

The New BusinessStarting a new business can be the leastexpensive way to begin, and it allows themost freedom since it has no history. Thebusiness name, its location, its equipmentand its employees are all yours to choose. Ifyou are selling products, you have theoption of starting with an all new inventory,unaffected by the purchasing decisionsmade by others. In addition, you are notaffected by prior commitments toemployees, leases and other obligationsthat an existing business frequently has.On the other hand, it can be difficult to raisemoney for new businesses and the risk is high. Since you probably do not have an established clientele, you canexpect your advertising expenses to behigher than those of an establishedbusiness, and you may have to go througha prolonged period of trial and error as youdevelop your marketing strategies. Becauseyou will have no history of prior operations,cash flow will be unpredictable and, mostlikely, insufficient.

Buying a BusinessBy purchasing an established business, youhave a product or service that is alreadyfamiliar to your customers, making the job ofadvertising easier and less costly. You maygain already established goodwill, whichincludes all the intangible efforts that go intobuilding a thriving business, including goodcustomer and trade relations, managementefficiency and public acceptance. Cash flowgenerally has been established and there isusually a good existing relationship withbanks and suppliers.

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A Readiness TestDO YOU HAVE WHAT IT TAKES TO SUCCEED?

Do you wonder if you have the right qualities to make it on your own in business? Take this quiz to find out. Under eachquestion, check the answer that comes closest to saying what you feel, then find your score using the key provided.

1. Are you a self-starter?____ Yes. I like to do things on my own and have a lot of initiative.

____ To a point. I’ll contribute what I am expected to.

____ No. I don’t put myself out unless it’s absolutely necessary.

2. Do you enjoy working with other people?____ Yes. I like people and can get along with anybody.

____ Sometimes. If people don’t bother me too much, I can get along with them.

____ No. Most people are difficult to work with and irritating.

3. Do you welcome responsibility?____ Yes. I like to take charge of things and see them through from beginning to end.

____ Not really. But I can handle it if I have to.

____ No. I’d rather let someone else be in charge.

4. Are you a good organizer?____ Yes. I always have a plan before I start a project, and usually get things lined up when others want to do something.

____ It depends. I do all right up until a point, but when things get too overwhelming, I tend to back off.

____ No. I like to take things as they come. I try not to plan too much in advance.

5. Are you a hard worker?____ Yes. I do whatever it takes to get the job done. I don’t mind working hard for something I want.

____ Usually. I’ll work hard for a while, but when I’ve had enough, that’s it.

____ No. I prefer to work only when I have to.

6. Are you comfortable making decisions?____ Yes. I can make up my mind in a hurry if I have to, and usually things turn out well.

____ I’m not sure. If I have plenty of time, I usually can, but if I have to make up my mind fast, later I always wonder if

I made the right choice.

____ No. I don’t like being the one to decide things. I’m afraid of making the wrong choices.

7. Do you finish what you start?____ Yes. If I’m determined to do something, nothing can stop me.

____ Usually. I can finish what I start as long as it is going well and is interesting.

____ No. I have great ideas, but frequently I have trouble carrying them out.

8. Are you eager and energetic?____ Yes. I’m a tireless worker who looks forward to new challenges and tasks.

____ For the most part. I have a reasonable amount of energy.

____ No. I run out of steam sooner than most of my friends do.

9. Do you like to sell?____ Yes. When I sell something I believe in, I feel as though I have done the customer a service. I find it extremely

satisfying and consider myself very persuasive.

____ Sometimes. Selling is a tough job, but I’m willing to learn the skills if I must.

____ No. I don’t like asking someone to buy something from me. I believe a good product or service should sell itself.

Scoring: How many check marks are beside the first answer? ____

How many check marks are beside the second answer? ____

How many check marks are beside the third answer? ____

If you have more than five checks beside the first answer, you probably have what it takes to run a business. If you have more than five checks beside the third answer, you may have difficulty making it on your own. If your score falls somewhere in the middle, you may need some help to make your business successful.

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When you research your potential purchase,carefully consider any disadvantages.Depending on the previous history of thebusiness, goodwill may not exist. Thebuilding or its location may contain hiddenliabilities, such as being situated three blocksaway from a similar operation. If the business involves retailing, wholesalingor manufacturing, there may be “dead stock”or inventory that is obsolete or damaged,turns over slowly or does not sell at all. Also beware of undisclosed reasons forselling, such as concealed financialobligations, deteriorating local conditions,labor problems, zoning changes, an expiringnon-renewable lease or limited growthpotential.You can find out about businesses for sale by letting your interest be knownamong members of the local businesscommunity, checking the classifiedadvertising sections of local newspapersand trade magazines, and consultingcommercial specialists and industrial realestate business brokers, lawyers andaccountants.There are a few additional precautions totake when you are looking to purchase abusiness. Beware of “partner wanted”opportunities. By law, every partner in ageneral partnership is responsible for thedebts of the entire partnership, so be verycautious about getting involved. You willalso want to avoid new patents, which aregenerally poor risks.Do not let yourself get rushed into a deal. All propositions and agreementsshould be in writing and drawn up orreviewed by a lawyer who works for youand has experience in business sales.Consult your nearest Better BusinessBureau, which can help you avoidprofessional swindlers, and have thebusiness you are buying investigated byboth a lawyer and an accountant.If you do decide to proceed, know yourlegal responsibilities. The sale of a business,either in part or as a whole, is called a bulksales transaction. Regardless of the size orcost of the sale, you must comply with thelaws regulating such transactions.If the seller of your potential business hasever been required to collect the New YorkState sales tax during business operations,he or she may owe sales taxes to the State.If you buy the business without havingfollowed bulk sales procedures, you may beresponsible for any outstanding sales taxliability owed by the seller.To find out if the seller does owe sales tax,you must begin the bulk sales transactionsprocedures with the New York StateDepartment of Taxation and Finance. To dothis, file Form AU-196.10, “Notification of Sale,Transfer or Assignment in Bulk,” at least 10

days before paying for or taking possessionof the business assets.For more detailed tax information includingbulk sales information, see Chapter 7 “Taxes”or, contact the Governor’s Office ofRegulatory Reform (Chapter 7).

FranchisingWhen you purchase a franchise, you canrun your business under the name andsystem of operation of a master company.The types of franchises available vary fromtax-preparation services and soft drinkdistributorships to fast food restaurants andhotel chains. The sizes vary from single-person operations to large businessesemploying hundreds of people.What you get as a franchisee depends onthe terms of your contract. Frequently, youbenefit from training opportunities as wellas a precise formula covering every detail ofoperation, which is based on the previoustrial-and-error experience of the franchiser.The Franchise Opportunities Guide,available from the International FranchiseAssociation, lists descriptions of hundredsof different franchises by category and alsoprovides a checklist for evaluating afranchise. To purchase a copy, contact theInternational Franchise Association, Inc.,1350 New York Avenue, Suite 900,Washington, DC 20005, telephone 202-628-8000 or visit www.franchise.org Under New York State law, franchisers arerequired to provide certain financial dataand to register with the New York StateAttorney General’s Office, InvestmentProtection Bureau, 120 Broadway, 23rdFloor, New York, NY 10271, telephone 212-416-8236 or visit www.oag.state.ny.usAs in any business transaction, researchthoroughly before you buy. Study therequired disclosure statement and proposedcontracts carefully. As always, consult withan attorney and other professional advisorsbefore making a binding commitment. Besure that all promises made by the seller(s)or salesperson(s) are clearly written into thecontract. Analyze the earnings claims. They must bein writing, describe the basis andassumptions for the claim, state the numberand percentage of other franchises whoseactual experience equals or exceeds theclaim. They also must be accompanied byan offer to show substantiating material forthe claim, and include cautionary languageregarding the exceptions to the claims.It is also advisable to talk with others whohave already invested in the business. Seekout both those recommended by thecompany and others who might offer adifferent point of view. Comparison shop forother franchises in the same field and similarbusiness opportunities that are notfranchised.

Always be sure the rights you are buyingare exclusive and that the product involvedsells elsewhere under similar circumstances.

Legal Forms ofBusiness OrganizationNo matter what business you are in, you willneed some form of legal businessorganization. There are four basic forms —the sole proprietorship, the partnership, thelimited liability company and thecorporation. Each has advantages anddisadvantages, including tax consequences.

SOLE PROPRIETORSHIPIn a sole proprietorship, you own andcontrol the business. You reap the profits,take the losses and are personallyresponsible for the debts and otherobligations of the business. As a soleproprietor, you report your business incomeand expenses on your individual income taxreturn.Setting up a sole proprietorship is theeasiest way to go into business. Legally, allyou have to do is obtain the licenses andtax identification numbers that the federal,state or local government require for yourtype of operation. If the business has aname other than your own, you also mustregister your business name with your localcounty clerk. (See Chapter 7.)This is the fastest, cheapest way to get intobusiness, and many successful operationshave started as sole proprietorships. As yourbusiness expands, you can change to apartnership, limited liability company, orcorporation if it is more advantageous.

PARTNERSHIPThere are several options available tobusiness owners who want to set up theirbusiness as a partnership. A general partnership is a business ownedand operated by two or more persons.Partners can contribute capital, specializedknowledge, marketing or management skillsand other valuable help. They also share therisk.Generally, partners share equally in therights and responsibilities of managing thebusiness, and by law each partner isresponsible for all the debts and obligationsof the firm. This means you are personallyliable for the full amount of the partnership’sdebts — even if the debts exceed yourinvestment and you did not personallyconsent to the debts.Partnerships are easy to start, but they canrun into trouble if the day-to-day stress ofrunning a small business leads to frictionbetween the partners. A written partnershipagreement, which should be drawn up by alawyer, is your best protection. In it you canspell out such issues as the capital

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contributions of each partner, duties andresponsibilities of each partner, changes inpartnership structure, dispute resolutionmethods and financial management.The partnership itself is not taxable. Instead,you report the firm’s income and expenseson federal and state “information” taxreturns and you are taxed on your share ofthe profits or loses at your individual incometax rate. The deduction of losses from yourpersonal income tax statement could be atax advantage.

Limited PartnershipA limited partnership is a partnershipformed by two or more persons having oneor more general partners and one or morelimited partners. Personal liability is joint andindividual for the general partners who areresponsible for the obligations of thepartnership. Limited partners are liable tothe extent of their capital contribution tothe partnership.The life-span of the limited partnership is forthe period stipulated in the Certificate ofLimited Partnership; or until a dissolutionevent occurs.For purposes of taxation, a limitedpartnership is not treated as a separatetaxable entity; business income is taxedthrough each partner’s personal tax return.If you want to operate a limited partnership, you must file a Certificate ofLimited Partnership (following anagreement of the partners) with theDepartment of State. The Revised LimitedPartnership Act requires that the limitedpartnership then publish notice of theformation in two newspapers and fileAffidavits of Publication with theDepartment of State.

Registered Limited Liability PartnershipSince 1994, New York State has recognized a form of general partnershipknown as the registered limited liabilitypartnership (RLLP), which offers thebenefits of liability limitations traditionallyassociated with professional corporations. Professionals are defined as those personsauthorized by law to render a professionalservice in New York. This includes, amongothers, physicians, attorneys, certified publicaccountants, architects and veterinarians.Typically under New York law, generalpartners are liable for the debts andobligations of each partner whenpartnership assets are not adequate. Butpartners of an RLLP are liable only for theirown professionally negligent or wrongfulacts, not for the negligence of their partners. A general partnership may elect to becomean RLLP by filing a registration form withthe Secretary of State and paying theappropriate filing fee. The Partnership Law

requires that the registered limited liabilitypartnership then publish notice of theregistration in two newspapers and fileAffidavits of Publication with theDepartment of State. The registration mustinclude such information as the name andaddress of the principal office of the RLLP,the profession or professions practiced, astatement of eligibility, and the date of theproposed effectiveness of the RLLP.

LIMITED LIABILITY COMPANYA limited liability company (LLC) retains themanagement flexibility of a partnershipwhile offering some of the advantages of acorporate structure. In an LLC membersretain the same liability protection theywould receive by incorporating, but avoidthe double taxation that is required of mostcorporations. This ability to manage yourown business and avoid personal liability aswell as taxation on both profits andpersonal dividends makes the LLC wellworth considering.To form an LLC, you must prepareorganizational documents and file adocument called the “Articles ofOrganization” with the Secretary of State,accompanied by the appropriate fee. TheLimited Liability Company Law requires thatthe limited liability company then publishnotice of its organization in two newspapersand file Affidavits of Publication with theDepartment of State. LLC names must befollowed by the words “Limited LiabilityCompany” or the abbreviations “LLC” or“L.L.C.”

CORPORATIONA corporation is a business that may haveone or many owners, and which conductstransactions as an individual entity. Manycorporations start out as one of the otherforms of business organization presentedhere. All corporations are considered Ccorporations unless a special election is filedfor S corporation status (see below).The decision to incorporate is sometimesbased on a need for additional capital forexpansion, which may be done by sellingshares of the company to outside investors.A corporation is run by elected officersrather than by the owners or shareholders.To identify if a business is incorporated, lookfor the abbreviations Inc., Corp. or Ltd.There are many advantages to forming acorporation. These include protection of thestockholders from personal liability; easy transfer of ownership; a separate legal existence that is stable andrelatively permanent; and greater ease insecuring capital from investors.Disadvantages include limitations on corporate activities; possible conflictbetween company management and theboard of directors; and government

regulation and paperwork at local, state andfederal levels. Corporations also may be subject to substantial taxes andgovernment filing fees.To create a corporation, you must followspecific statutory requirements, whichinclude filing a Certificate of Incorporationwith the New York State Department ofState, Division of Corporations, 99 Washington Ave, One Commerce Plaza,Albany, NY 12231, telephone 518-473-2492,www.dos.state.ny.us

S corporationBusinesses that want to incorporate butwish to avoid the tax burden of acorporation may form an S corporation. The income and expenses of the Scorporation are distributed to shareholdersin proportion to their shareholdings, andprofits or losses are taxed at theshareholders’ individual tax rates. In contrast,a C corporation’s profits are taxed twice, onboth corporate profits and shareholders’income.Not all corporations qualify for Scorporation status. An S corporation cannothave the following: more than 75shareholders; any non-individualshareholders, other than not for profitcorporations, estates and certain trusts; anonresident alien as a shareholder; andmore than one class of stock.To apply for S corporation status, you mustfirst be a corporation. Then, the corporationmust elect S corporation status for federalincome tax purposes by filing Form 2553with the Internal Revenue Service. Acorporation which has elected Scorporation status for federal income taxpurposes may then elect S corporationstatus for New York State income andcorporation franchise tax purposes. This isdone by completing Form CT-6, “Electionby a Small Business Corporation” andsubmitting it to the New York StateDepartment of Taxation and Finance to theaddress indicated on the form.For more information, contact the New York State Office of the Department ofState, Division of Corporations, 99 Washington Ave, One Commerce Plaza,Albany, NY 12231, telephone 518-473-2492,www.dos.state.ny.usBecause of the complex nature of thesevarious forms of business organizations, it isadvisable to consult with an attorney andan accountant to help you thoroughlyevaluate which option is for you. A lawyercan prepare the proper legal papers andadvise you on your legal obligations, whilean accountant can describe the taxadvantages and disadvantages of eachform.

So you have decided to follow your dreamand open your own business. Before you goany further, you must outline a strategy orbusiness plan. When prepared carefully and thoughtfully,the business plan is a road map that canpave the way for your growth and success.It should include such details as what yourbusiness is, how you plan to run and financeit, how much it has earned or lost (if it is anestablished enterprise) and how much youproject it will earn in the future.A detailed plan is an excellent evaluationtool that you can use to spot any potentialweaknesses in your proposed business. It isalways easier and less costly to rewrite aplan than to change the direction of abusiness that is already up and running.A written plan also will help to organize andconsolidate your ideas so that you can sellyourself and your business more effectively.Banks and investors want to see soundplans and ideas before deciding to lendcapital, particularly to a new business.It pays to take the time to make sure yourplan reflects all of your ideas and strategies.You may consider hiring someone to helpwith typing or editing, but only you canwrite the best, most effective plan for yourown business. There are many formats youcan use. The following outline is only asuggestion. For further assistance, checkwith your local New York State SmallBusiness Development Center or checktheir web site at www.nyssbdc.org fordetailed information on writing a businessplan. The addresses for centers locatedthroughout the State are listed later in thischapter.

Description ofProducts or ServicesStart with a brief but thorough descriptionof the central activities of your business.Include the type of business and what it willoffer in the way of goods and services, aswell as any features that would make yourbusiness stand out from the competition.Include a description of your facilities,supplies and suppliers, equipment formanufacturing and methods of productdistribution.

It is also important to describe yourcustomers. By knowing them well, you willbe better able to predict what they want inthe future, which is essential for long-termgrowth.

Goals and ObjectivesState your long-range goals and themilestones you will have to pass to achievethem. Then make a timetable foraccomplishing specific short-term businessobjectives that will enable you to reach yourlarger goal.As an example, your long-range goal maybe “to be the largest manufacturer ofcomputer furniture in the Northeast.” Firstyou must decide on your definition of“largest manufacturer.” It may mean the largest gross sales, the largest numberof employees or the most diverse productlines to meet the customer’s needs. Perhapsit means all of these, but to get there youmust put into place logical, carefullyconsidered steps to reach your goal.

CHAPTER 2

Mapping a Strategy

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Be realistic when making short-termobjectives. If a reasonable estimate of your first year’s gross profit is $100,000, donot set yourself a $500,000 goal. Giveyourself achievable targets in a limited timeframe, and then write a plan for meetingthem. A successful business not only looksforward, but reevaluates its past, so it is inyour best interest to compare your actualbusiness performance to your written goalson a continuing basis.

Marketing Analysisand StrategyThoroughly investigate the fields thatinterest you and make note of trends. Youshould strive to offer a unique product orservice with potential for a long life span.This means knowing where the future lies inyour industry in such areas as potentialcompetitors, new technology, culturalchange and economic trends.

The Business PlanAN OUTLINE

I. Description of products or servicesA. what your business isB. who your customers are

II. Goals and objectivesA. list of business goalsB. timetable of objectives to reach these goals

III. Market analysis and strategyA. trends in your industryB. target customersC. reaching your prospectsD. competition

IV. Management and personnelA. present and future forms of business organizationB. organizational staffing chart, resumes, hiring practices,

personnel policiesV. Financial overview

A. cash flow (do not overestimate sales or underestimate expenses)

B. financial statements — revenue and expense statements and balance sheets

C. copies of income tax returns if you are already in businessD. projections — sales and profitsE. key business ratios compared to averagesF. funds required and their use, including cost of setting up, inventory,

overhead, working capital and personal living expensesG. break-even point

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Once you are confident that you have anexcellent product or service that fills aspecific client need better than anyone else,you must convey that message to yourconsumer. To do this successfully you needanswers to at least these six basicquestions: Who are your customers? Whereare they? What do they want? When dothey want it? Why should they buy it fromyou? How are you going to get it to them?Accurate “target marketing” may be thedifference between a business that fails andone that flourishes. (See Chapter 4.)Use this information to develop yourstrategies for advertising and promotion. Bespecific about your plans. Include whattypes of media you will use and how often.You may also want to develop a system toevaluate how effective your advertising is,such as a weekly sales monitor or customersurvey. Do not neglect to identify and keep watchon the competition even before you startyour own business. You can learn from theirsuccesses and mistakes. And if you are tostay the proverbial “one step ahead,” youmust first know what they are doing, andthen do it better.

Management and PersonnelDescribe your desired business structure indetail. Include provisions for the currentbusiness structure, as well as for growth,such as the addition of a partner or creationof a board of directors.Provide a thorough review of your abilities,including any particular experiences or skillsthat will enable you to run your businesswell. List anyone else who will help youmanage better, such as an accountant,lawyer, insurance agent, partner oremployee. You should include your ownresume and those of any partners orprincipal staff.Describe procedures that demonstrate thatyour business is well-structured andcarefully monitored. These may includeorganizational staffing charts, in-housebusiness meeting schedules, cash flowanalysis, yearly reviews of staff and financialstatements, and procedures for use ofoutside vendors and resources.

PERSONNEL POLICIESInitially, you may plan to operate withoutemployees, either doing all the workyourself, perhaps with the help of a familymember, or contracting some work toindependent outside contractors. Thisapproach keeps things simple, butstatistically, businesses with employees thatgrow in number tend to last longer thanthose without them.

If you know you are going to hireemployees at some point, you shouldinclude that in your business plan. Hiringone or more employees forces you to meeta variety of legal obligations, which arediscussed in Chapter 7. In addition, youshould have a personnel policy and followgood hiring practices.

HIRING PRACTICESBegin your employee search by writingdetailed job descriptions. Once you havedefined what positions you need to fill andwhat qualifications are necessary to fillthose positions, you can begin your search.Have a job application form available forthose candidates who do not have aresume. Forms are available at stationery oroffice supply stores. Review applications asyou receive them and set up interviews withthose who appear best qualified.During the interview give a briefintroduction about the job and thecompany and specify what you expect fromyour employees. Then let the applicant domost of the talking. Ask simple, specificquestions, such as: “What did you do atyour last job? What did you like or dislikeabout it? What skills do you bring to thisjob?” Do not ask about race, religion, health,age, marital status, arrests not followed byconvictions and other personal matters —it’s illegal to do so.Compare the applicants in terms of desiredskills, work record, self-motivation,willingness and ability to learn, and ability toget along with others. You may need toschedule a second or even third interview toselect the best applicant. Before you offerthe position, contact references, especiallyformer employers, teachers, clergy andothers who have worked with the applicant. When you have made your decision, offerthe job to the person who is your firstchoice. Complete federal Form I-9,

“Employment Eligibility Verification,” for allnew hires. (A word of caution: Do not hirefamily members and friends simply becausethey need jobs. Make sure you need anadditional worker and that the person youare considering has the skills andexperience you want.)Welcome your new employee by giving a tour of the premises andintroductions to the other employees.Explain how the business operates and whodoes each job. Describe in detail what theworker will be doing. Now is also a goodtime to outline how and when theemployee will be evaluated.Describe your employment policies in detail. It’s a good idea to have these in writing, perhaps in the form of anemployee manual, to help preventmisunderstandings. Also make sure yournew employee knows who to talk to whenproblems arise.Do not forget to post New York Stateminimum wage rates, as well as policiesregarding work hours and conditions underNew York State Labor Law. There are alsomandatory federal posting requirementsregarding minimum wage and other fairlabor standards, equal employeeopportunity, job safety, health protectionand polygraph protection. The chart onpage 50 serves as a general guideline forvarious State and Federal postingrequirements.There are many resources available forlocating potential applicants. You cannetwork with other business andcommunity people to find employees whoare looking for work. Depending upon thetype of position and level of expertiserequired, post the job description in schools,clubs, churches and with job trainingprograms. You can also file with your localunemployment insurance office and job

Basic Elements of a Personnel PolicyWorking hours: Describe briefly the policy for working hours, including the starting and quitting time, lunch schedules and days of the week employees will beexpected to work. Also establish policies for overtime. Consider staffing options such asflex-time, job sharing and part-time employment in addition to full-time positions. Suchflexibility will increase the size of your labor pool and may allow you to offer more or betterservice to your customers.

Compensation: Find out what the prevailing wage rates are in your locale for the type ofworkers you expect to be hiring. Remember, when you employ people, you are in compe-tition with other employers for the best help.

Fringe benefits: Although fringe benefits are not a legal requirement, a variety of healthand pension plans are available for small businesses. Fringe benefits can be a strong drawwhen competing for new employees. Ask your insurance agent or accountant aboutthem.

Other policies: Other employee policy decisions include vacation time, sick leave, leavesof absence, time off with or without pay, paid holidays, promotions and evaluations.

8

development program. And there is alwaysadvertising in the local newspaper.The New York State workforce developmentsystem provides services to businessesseeking to hire employees. By visiting yourlocal One Stop Center, you can receivevarious services regarding finding the rightemployees. One Stop Centers can provideyou with access to on-line job posting, pre-screening applicants, access to trainingprograms, preparing a human resourcemanual, training facilities and confidentialinterviewing space. To find your local onestop center, visit www.workforcenewyork.org

Financial OverviewUntil you have a business that is up and running, you are not going to haveanything but projections of revenue andexpense statements or balance sheets.Once you have an operating business, youshould compare actual statements with theprojections in your business plan. Potentialinvestors and bankers will want to see thesewhen you try to attract capital or want toborrow money.As a new business that has no financialhistory, the cash flow forecast is an essentialtool. Used correctly, it can help keep youfrom going out of business. The monthlycash flow projection tells you how muchcash you will need at the end of the monthto meet your expenses.

CASH FLOW FORECASTINGYou should try to estimate your monthlycash flow at least 12 months in advance andupdate it monthly with the real figures.When there are significant differencesbetween real and projected cash flow, try tofigure out why, so that your futureprojections will be more accurate. Items towatch very carefully in your cash flowanalysis are credit and accounts receivable(the money people owe you). Be careful notto get too much of your working capitaltied up in accounts receivable, since this canrapidly deplete your cash pool and theability to pay your own creditors.Use the sample cash flow projection andanalysis on page 12 as a guide fordeveloping your own. The expenditurecategories are only suggestions. You canget pads of paper suitable for cash flowprojections from office supply stores, or ifyou have access to a computer, there arefinancial programs available that will docash flow projections, revenue and expensestatements, balance sheets and more.To calculate your financial status at the endof each month, subtract total expendituresfrom total cash available. If the result is negative, you will have tocome up with more cash to meet yourexpenses. Negative ending positions are

fairly typical in start-up businesses and inbusinesses that are growing rapidly. Plan forthem by making sure you have enoughcash in the bank to cover your expenseseach month. That may require borrowing orattracting new permanent capital to yourbusiness. Established ventures with largeseasonal variations often depend on a

Sample Cash Flow Budgeting FormUse of whole dollars Estimate Actual Estimate Actual Estimate Actual

$ % $ % $ % $ % $ % $ %

1. cash on hand(beginning of month)

2. cash receipts

(a) cash sales

(b) collections from credit accounts

(c) loan/other cash support (specify)

3. total cash receipts

(2a + 2b + 2c = 3)

4. total cash available (1+3)

5. cash paid out

purchases (merchandise)

business taxes, licenses

employer’s share Social Security

unemployment

rent

repairs and maintenance

gross employees’ salaries

insurance

professional fees

commissions

interest and bank charges

advertising

auto, truck

trade publications

office supplies

telephone

utilities

operating supplies

travel

laundry and uniform

entertainment

contract services

miscellaneous

subtotal

loan principle payment

with interest

capital purchases (specify)

other start-up costs

owners’ withdrawal

6. total cash paid out

7. cash position (4-6)

revolving line of credit or extended dating(payment due dates) to handle a temporaryshortage of cash. Most business expertsagree that you should do your cash flowanalysis and cash flow projection monthly. Itforces you to be more realistic anddisciplined in your thinking and keeps yourattention focused on the bottom line.

The New York State SmallBusiness Development CenterSBDC Network: A State-wide ServiceDelivery System.

NYS/SBDC CENTRAL OFFICE:Small Business Development CenterState University of New York22 Corporate WoodsAlbany, NY 12246518-443-5398 • 800-732-SBDCwww.nyssbdc.org

SBDC REGIONAL OFFICES

ALBANY SBDC, University at AlbanyHarriman Business CenterBuilding 7A, Suite 5001220 Washington AvenueAlbany, NY 12226518-485-7647E-mail: wbrigham@uamail.albany.eduhttp://albany.nyssbdc.org

Manufacturing and Defense DevelopmentCenter, University at AlbanyHarriman Business CenterBuilding 7A, Suite 5001220 Washington AvenueAlbany, NY 12226518-485-7647

Adirondack-Colonie Chamber of Commerce5 Warren StreetGlens Falls, NY 12801518-485-7647 (By Appointment Only)

Albany-Colonie Chamber of Commerce1 Computer Drive SouthAlbany, NY 12205518-485-7647 (By Appointment Only)

Rensselaer Chamber of Commerce255 River StreetTroy, NY 12180518-485-7647 (By Appointment Only)

Saratoga Chamber of Commerce28 Clinton StreetSaratoga Springs, NY 12866518-485-7647 (By Appointment Only)

Southern Saratoga Chamber of Commerce15 Park Avenue, Suite 7BClifton Park, NY 12065518-485-7647 (By Appointment Only)

Schenectady Chamber of Commerce920 Albany StreetSchenectady, NY 12307518-485-7647 (By Appointment Only)

SUNY Cobleskill State Route 7Cobleskill, NY 12043518-485-7647 (By Appointment Only)

BINGHAMTONSBDC, Binghamton University, Artco Building218-222 Water Street, 3rd FloorBinghamton, NY 13901-2705607-777-4024E-mail: sbdc@binghamton.edu Web: http://sbdc.binghamton.edu

PROJECTIONS OF SALES ANDPROFITSProject what your revenue and expensestatement will look like at the end of 12months of operation. The cash flowprojection tells you whether you are solvent.The revenue and expense statement showsyour profit and loss. You will find a samplestatement in Chapter 5.

KEY BUSINESS RATIOSKey business ratios compare historical orprojected figures such as sales toreceivables, cost of sales to inventory, salesto working capital and total current assetsto total current liabilities. Ratios andpercentages of particular expensecategories compared to gross sales allowyou to see how your business compares toother similar businesses.By comparing your ratios, either historical or projected, with averages foryour type of business, you can see if youroperation is being efficiently run and if yourforecasts are realistic. Books such as AnnualStatement Studies, published by RobertMorris Associates, and Dun & Bradstreet’sKey Business Ratios show key businessratios for hundreds of different types ofbusiness.

BREAK-EVEN ANALYSISA break-even analysis shows the point atwhich your business will be breaking even,that is, neither making a profit nor a loss. It isexpressed in dollars or number of sales.Once you know your break-even point, youhave a goal and can devise a specific planon how to get there.To do a break-even analysis you will need tobe familiar with certain financial terminology.You already know that break-even sales arethe amount of sales necessary to cover theexact amount of all your business expenses. In general, you will have two types of expenses, fixed and variable. Fixed costs(FC) are costs that remain constant nomatter what your sales (S) volume. Theseinclude overhead costs such as rent, officeand administrative costs, salaries, benefits,heat and light as well as such “hidden costs”as depreciation, loan amortization andinterest.Variable costs (VC) are those costsassociated with sales. They include the costof goods sold, variable labor costs and salescommissions.The basic break-even formula is: S = FC + VC. (S = break-even level of salesin dollars; FC = fixed costs in dollars; and VC= variable costs in dollars.) While theconcept is deceptively simple, you shouldnot neglect to calculate and recalculate thisfigure on a regular basis. Variable costs arejust that — they change often and can getout of hand as sales volume grows.

Some of the figures you will use to calculateyour break-even analysis will have to beestimates, particularly in a new business. It isa good idea to make your estimatesconservative by using somewhat pessimisticsales and margin figures, and by slightlyoverstating your expected costs.When you calculate a projected break-evenlevel for a new business, you will probablynot know what your total variable costs willbe. You can use a variation of the basicbreak-even formula that is based on youranticipated gross margin (GM, i.e. your grossprofit on sales) expressed as a percentageof sales: S = FC/GM where GM = gross marginexpressed as a percentage of sales.If you want to calculate how many units youneed to sell to break even, divide the break-even in dollars by the unit price, which givesyou the number of units you need to sell.You can substitute different numbers toquickly calculate their effects on yourbusiness. One way to do this is to make thebest case, average case and worst caseassumptions. This type of analysis can bevaluable if you are thinking of making acapital investment and want a quick picturecomparing the relative merits of buying orleasing equipment or property.

Sources of AssistanceThe State of New York has many resourcesavailable to emerging entrepreneurs. Thereare several agencies that can provideinformation to you on anything fromwriting a business plan and obtainingcapital funding to finding good employeesand following appropriate legal businesspractices. The following section is anoverview of these agencies along with howto contact the office nearest you.

New York State SmallBusiness DevelopmentCentersThe New York State Small BusinessDevelopment Center (NYS/SBDC),administered by the State University of NewYork and funded by the U.S. Small BusinessAdministration, offers pro bono counselingassistance for small business entrepreneurs,both start-ups and existing businesses.Services include assistance on business plandevelopment, loan resource identification,accounting, financial planning, exportinformation, cost analysis, and marketing aswell as targeted business training programs.Since its inception in 1984, the SBDC hascounseled over 200,000 New Yorkentrepreneurs. These entrepreneurs, in turn,have invested over $2 billion in their NewYork businesses. SBDC offices areconveniently located throughout the state.

9

BINGHAMTON (CONTINUED)Chenango County Chamber of Commerce19 Eaton AvenueNorwich, NY 13815-3815607-334-1400 (By Appointment Only)

Cortland County BDC-IDA37 Church StreetCortland, NY 13045607-756-5005 (By Appointment Only)

Otsego Chamber of Commerce12 Carbon StreetOneonta, NY 13820-2535607-432-4500 (By Appointment Only)

Tioga County Chamber of Commerce188 Front StreetOswego, NY 13827-1521607-687-2020 (By Appointment Only)

Tompkins County Chamber of Commerce904 East Shore DriveIthaca, NY 14850607-273-7080 (By Appointment Only)

BROCKPORT/ROCHESTER SBDC, SUNY Brockport, Morgan 3350 New Campus DriveBrockport, NY 14420-4420585-395-8410E-mail: sbdc@brockport.edu Web: http://cc.brockport.nyssbdc.org

Downtown Rochester Outreach CenterSUNY Brockport Metro CenterSibley Tower Building55 St. Paul StreetRochester, NY 14604-1007585-395-8410

Finger Lakes Community College Outreach4340 Lakeshore DriveCanandaigua, NY 14424585-395-8410

Genesee Chamber of Commerce210 East Main StreetBatavia, NY 14020585-343-7440

Genesee Community College Outreach1 College Road, BEST CenterBatavia, NY 14020585-345-0055 x 6143

Greece Outreach CenterGreece Chamber of Commerce2496 Ridge Road West, Suite 201Rochester, NY 14626585-395-8410

HTR OutreachLenox TechTech Enterprise Center150 Lucius Gordon Drive, Suite 100West Henrietta, NY 14586585-395-8410

Victor Chamber of Commerce37 East Main Street on Route 96Victor, NY 14564585-395-8410

BRONX SBDC, Lehman College250 Bedford Park Boulevard WestOld Gym Building, Room 007Bronx, NY 10468-1589718-960-8806E-mail: Clarence.stanley@lehman.cuny.eduWeb: http://bronx.nyssbdc.org

Abyssinian Development CorporationOutreach4 West 125th StreetNew York, NY 10027646-442-6541

BROOKLYNSBDC, NYC College of Technology25 Chapel Street, 11th FloorBrooklyn, NY 11201718-797-0187E-mail: MColon@citytech.cuny.eduWeb: http://brooklyn.nyssbdc.org

BUFFALOSBDC, State University College at BuffaloGrover Cleveland Hall, Room 2061300 Elmwood AvenueBuffalo, NY 14222-4222716-878-4030E-mail: smallbus@buffalostate.eduWeb: http://buffalo.nyssbdc.org

CANTONSBDC, SUNY Canton Education CenterSt. Lawrence Centre MallRoute 37Massena, NY 13662315-764-0683E-mail: sbdc@canton.eduWeb: http://canton.nyssbdc.org

Akwesasne Satellite OfficeAkwesasne Mohawk Reservation412 State Route 37Hogansburg, NY 13655-3109315-764-0683 (By Appointment Only)

SBDC, SUNY Canton Faculty Office Building, Room 20234 Cornell DriveCanton, NY 13617-1098315-764-0683 (By Appointment Only)

Wanakena NYS Ranger School Satellite257 Ranger School RoadWanakena, NY 13695315-764-0683 (By Appointment Only)

CORNINGSBDC, Corning Community College24 Denison Parkway West, Suite 203Corning, NY 14830-3297607-937-6861E-mail: gestwicki@corning-cc.eduWeb: http://corning.nyssbdc.org

Watkins Glen Outreach CenterSchuyler County Partnership forEconomic Development2 North Franklin StreetWatkins Glen, NY 14891607-962-9461 (By Appointment Only)

JAMESTOWNSBDC, Jamestown Community College525 Falconer StreetJamestown, NY 14702-0020716-665-5754 or 800-522-7232E-mail: irenedobies@mail.sunyjcc.edu Web: http://jamestown.nyssbdc.org

Dunkirk Outreach Center Jamestown Community CollegeTraining and Conference Center10807 Bennett RoadDunkirk, NY 14048716-338-1024 (By Appointment Only)

LONG ISLAND (FARMINGDALE)SBDC, SUNY FarmingdaleCampus Commons2350 Broadhollow RoadFarmingdale, NY 11735-1006631-420-2765/7930/7931/7952E-mail: Wesnofl@farmingdale.edu Web: http://www.farmingdale.edu/sbdc

Brookville Outreach CenterC.W. Post Campus, Long Island University,Loerber Hall, Room 306720 Northern BoulevardBrookville, NY 11548-1300516-299-2095

EOC Hempstead Outreach Center269 Fulton AvenueHempstead, NY 11550-3900516-564-8672/1895

LONG ISLAND (STONY BROOK)SBDC, Stony Brook UniversityNicolls RoadHarriman Hall, Room 109Stony Brook, NY 11794-3777631-632-9070E-mail: lynne.schmidt@sunysb.eduWeb: http://stonybrook.nyssbdc.org

Stony Brook University Incubator @Calverton4603 Middle Country RoadCalverton, NY 11933631-727-3992

MANHATTANSBDC, Pace University163 William Street, 16th FloorNew York, NY 10038212-618-6655E-mail: sbdc@pace.edu Web: http://manhattan.nyssbdc.org

MIDTOWN MANHATTANSBDC, Baruch College55 Lexington Avenue, Suite 2-140New York, NY 10010-0010646-312-4790E-mail: monica_dean@baruch.cuny.eduWeb: midtownmanhattan.nyssbdc.org

10

SBDC REGIONAL OFFICES (CONTINUED)

MID-HUDSONSBDC, Business Resource CenterOne Development CourtKingston, NY 12401-1949845-339-0025E-mail: sehwerea@sunyulster.eduWeb: http://mid-hudson.nyssbdc.org

Fishkill Satellite OfficeMarist College Extension400 Westage Business CenterFishkill, NY 12524-2219845-897-3945

Liberty SatelliteChamber of Commerce59 North Main StreetLiberty, NY 12754845-292-8500

Margaretville Satellite Officec/o Catskill WatershedMain StreetMargaretville, NY 12455845-585-1400

New Windsor SatelliteStewart Airport33 Airport Center Drive, Suite 201New Windsor, NY 12533845-567-2702

Poughkeepsie SatelliteChamber of Commerce1 Civic Center Plaza, 4th FloorPoughkeepsie, NY 12601-3117845-454-1700 x 1014

MOHAWK VALLEYSBDC, SUNY Institute of Technology Kunsela Hall, Room B20612 North Horatio StreetUtica, NY 13504-3050315-792-7547E-mail: sbdc@sunyit.eduWeb: http://sbdc.sunyit.edu

Herkimer County Satellite OfficeHerkimer County Community CollegeOffice of Community Education100 Reservoir Road CampusHerkimer, NY 13350315-866-0300 x 8251 (By Appointment)

Madison County Satellite OfficeMadison County Industrial Development Agency3215 Seneca TurnpikeCanastota, NY 13032315-697-9817 (By Appointment Only)

Mohawk Valley EDGE/RIDC153 Brooks RoadRome, NY 13441315-338-0393 (By Appointment Only)

NIAGARASBDC, Niagara County Community College50 Main StreetLockport, NY 14094-3607716-434-3815E-mail: sbdc@niagaracc.suny.edu Web: http://niagarasbdc.org

SBDC Outreach CenterSUNY Geneseo1 College Circle, South Hall, Room 111Geneseo, NY 14454-1401585-245-5429

NORTH COUNTRYSBDC, Plattsburgh State University ofNew York194 US OvalPlattsburgh, NY 12903-3900518-564-2042E-mail: sbdc@plattsburgh.edu Web: http://northcountry.nyssbdc.org

Malone Satellite OfficeOne Work Source Center158 Finney BoulevardMalone, NY 12953518-564-2042 (By Appointment Only)

Lake Placid SatelliteEssex County Business Council atLake Placid Visitor’s Bureau216 Main StreetLake Plaid, NY 12946518-564-2042 (By Appointment Only)

Elizabethtown SatelliteEssex County IDA7566 Court StreetElizabethtown, NY 12932518-564-2042 (By Appointment Only)

ONONDAGASBDC, Onondaga Community CollegeRalph & Fay Whitney AppliedTechnology Cntr4585 West Seneca Turnpike, Ste W-206Syracuse, NY 13215-4585315-498-6070E-mail: sbdc@sunyocc.edu Web: http://onondaga.nyssbdc.org

Cayuga County Satellite OfficeChamber of Commerce Auburn & Cayuga County36 South StreetAuburn, NY 13021315-498-6070 (By Appointment Only)

Cazenovia Satellite OfficeGreater Cazenovia Chamber of Commerce132 1/2 Albany StreetCazenovia, NY 13035315-498-6070 (By Appointment Only)

Greater Syracuse Chamber ofCommerce Satellite Office572 South Salina StreetSyracuse, NY 13202315-498-6070 (By Appointment Only)

OCC North Campus Satellite Office8015 Oswego RoadLiverpool, NY 13090-1699315-498-6070 (By Appointment Only)

QUEENS (JAMAICA)SBDC, York CollegeThe City University of New York94-50 159th Street, Room 107Jamaica, NY 11451-9902718-262-2880E-mail: sbdc@york.cuny.edu Web: http://queens.nyssbdc.org

QUEENS (LONG ISLAND CITY)SBDC, LaGuardia Community College29-10 Thomson Avenue, Room C916Long Island City, NY 11101-2940718-482-5303E-mail: sbdc@lagcc.cuny.edu Web: http://laguardia.nyssbdc.org

STATEN ISLANDSBDC, College of Staten Island2800 Victory BoulevardBuilding 2A, Room 300Staten Island, NY 10314-9806718-982-2560E-mail: sullivan@mail.csi.cuny.edu Web: http://statenisland.nyssbdc.org

WATERTOWNSBDC, Jefferson Community College1220 Coffeen StreetWatertown, NY 13601-1897315-782-9262E-mail: sbdc@sunyjefferson.edu Web: http://watertown.nyssbdc.org

Lowville Satellite Office - LCIDA7642 State Street, Box 106Lowville, NY 13367-0106315-782-9262 (By Appointment Only)

Oswego Satellite OfficeOswego State University103 Rich HallOswego, NY 13126-3599315-312-3492

WESTCHESTERSBDC, Mercy College470 Nepperhan Avenue, Suite 313Yonkers, NY 10701-6653914-375-2107E-mail: aisraeli@mercy.eduWeb: http://westchester.nyssbdc.org

SBDC, Mercy College555 Broadway Dobbs Ferry, NY 10522914-674-7485

SBDC, Rockland Community CollegeBrucker Hall, Room 6101145 College RoadSuffern, NY 10901-3620845-356-0370

Small Business Development Outreach CenterWhite Plains Outreach SBDC108 Corporate Park Drive, Suite 101White Plains, NY 10605914-948-2110

11

ENTREPRENEURIALASSISTANCE CENTERSNew York State has established a network

of Entrepreneurial Assistance Centers

(EACs) that provide specialized help to

women, minority group members and

persons with disabilities who are starting up

a business or who own a firm in the early

stages of business development.

There are two types of EACs, both

of which are administered by Empire

State Development. A Development Center

provides intensive management and

technical guidance. An Entrepreneurship

Support Center provides classroom

instruction in the principles and practices of

entrepreneurship.

For more information about these

programs, contact Empire State

Development, 1-800-STATE-NY or

212-803-2410.

U.S. SMALL BUSINESSADMINISTRATIONThe U.S. Small Business Administration

provides financial, technical and

management assistance to help Americans

start, run, and grow their businesses. With a

portfolio of business loans, loan guarantees

and disaster loans worth more than $45

billion, in addition to a venture capital

portfolio of $13 billion, SBA is the nation’s

largest single financial backer of small

businesses.

For more information contact the SBA

Answer Desk at 1-800-U-ASK-SBA,

visit the SBA web site at www.sba.gov or

write to U.S. Small Business Administration,

409 3rd St. S.W., Washington, D.C. 20416.

OTHER SOURCESTrade associations that may be helpful as

you develop your plans include The

Business Council of New York State,

152 Washington Ave., Albany, NY 12210,

telephone 518-465-7511 or 1-800-358-1202;

National Federation of Independent

Business (NFIB), One Commerce Plaza,

Suite 1119, Albany, NY 12260, telephone

518-434-1262, www.nfib.com; and

Retail Council of New York State, Inc.,

258 State Street, Albany, NY 12210,

telephone 518-465-3586,

www.retailcouncilnys.com

You may want to consider joining your local

Chamber of Commerce. Chamber’s provide

a multitude of services that can help you

grow your business, from networking

opportunities to obtaining health insurance

for you and your employees. You will find

your local Chamber listed in your phone

book or via the Internet.

Help is also available from the Service Corps

of Retired Executives (SCORE) program, in

which retired business executives volunteer

their services to small businesses seeking

managerial assistance. Their service is

offered free. You may contact SCORE at

www.score.org or through the U.S. Small

Business Administration office closest to you.

The New York State Department of Labor

can supply a wide range of labor market

information, such as business trends and

wage rates.

Human resource consultants provide

personnel consulting services that range

from written job descriptions to the

development of employee handbooks. The

Apprenticeship Training Program can help

business owners in their efforts to develop a

high trained workforce, while the Directory

of Labor Market Information describes

some 40 publications and data series

designed to help your business succeed.

For more information on these

services, contact the New York State

Department of Labor at 1-800-HIRE-992,

call the local office nearest you, or visit

www.workforcenewyork.org

12

You’re on your way. You’ve decided what kind of businessyou plan to open and how you will goabout it. You’re familiar with the differentforms of business organization and havedrafted a convincing business plan. Now you need to know the nuts andbolts of how to finance your business.The ability to raise money, also known ascapital, is essential not only for starting,but for maintaining and expanding ahealthy business. No matter how goodyour concept or your business plan, it willfall flat without the proper financing, thelifeblood of any enterprise.

Understanding CapitalBeing knowledgeable and well-preparedgoes a long way toward helping yousecure the financial resources you willneed. It is essential to have a clearunderstanding of the different kinds ofcapital and their uses.

PERMANENT CAPITALPermanent capital, also known as equitycapital, is money you gather from yourown resources and personally put intoyour business. It can also include moneycontributed by partners and, if youbecome incorporated, money thatcomes from the sale of shares of stockissued by your business. If you choose tohold back some of your profit and put itback into the business, it also becomespermanent capital.Permanent capital is just that — a permanent part of the business. Thismeans it cannot be removed from thebusiness once it has been invested, andthere is no legal obligation to pay a returnon it or to repay it. This money is always atrisk, because if the business fails, you canlose part or all of the money.

BORROWED CAPITALAlthough many new businesses begin with permanent capital, very fewgoing concerns limit their financing to thisalone. You probably will want to borrowmoney to invest in marketing, research,additional fixed asset purchases such asfacility or machinery upgrading, or otherimprovements aimed at increasingproductivity and controlling costs.

— from 25 to 50 percent — from theirown resources. Before coming up with afigure, you should consider many things,including your living expenses; your networth; how much permanent capital youcan furnish and how much you will needto borrow; your first-year expenses; your estimated break-even point; andcontingency plans if you need additionalfunds. Remember to be honest. Themore candid you can be, the better yourchances for success.Using your own money to finance abusiness is the least expensive and leastobligatory method of financing. You areresponsible only to yourself for whathappens to the money and you don’thave to ask for permission to use it. Agood way to calculate the amount ofpermanent capital you can contribute isto fill out a personal financial statement,such as the one that follows. Besides tapping into your own funds,you may also consider approachingfamily and friends for permanent capital.Other sources include retirement income,the income of a spouse, your incomefrom a part-time or full-time job,investment by partners, andincorporations and sale of stock.

BanksThere are many different types of lendersand lending programs. After personalsavings, banks are the major source ofcapital for entrepreneurs. Mostcommercial banks will facilitate thefinancing of well-managed, credit-worthysmall businesses and strive to give themthe help they need. However, you mayalso want to consider savings banks andsavings and loan associations for smallbusiness loan services.When approaching a bank for a loan, besure you are well-prepared. You shouldhave a written business plan and abudget that shows the type of business,credit needed and anticipated sales andexpenses.If you need a bank loan for an alreadyestablished business, having accurate,well-kept account books will be to youradvantage. If you cannot afford a full- orpart-time accountant, you can keep your

CHAPTER 3

FinancingYourVenture

13

No matter how you use this capital, thebottom line is always the same — byborrowing money to achieve specificgoals, you can often make your businessmore profitable than if you rely solely on personal savings.

THE FIVE CAPITAL NEEDSAs you try to decide how much capitalyou will need to start your business, it ishelpful to know what all of your costs willbe. Regardless of the kind of capital youhave to work with, permanent orborrowed or a combination of the two,there are distinct categories of capital that every business requires.The first is start-up funds, which includemoney for furniture, fixtures andmachinery. Next, you will want toconsider overhead, which includes thecost of rent, utilities, cost of credit,delivery costs and fixed salaries. Other equally important capital needsinclude inventory or parts; workingcapital, which is the money you will needto conduct business, such as petty cash,postage and cash-on-delivery payments;and personal living expenses. There are many sources of capital for new and growing businesses. Thefollowing sections briefly summarize themost common sources, their advantagesand disadvantages and, whereappropriate, how to contact thosesources. Not every option will apply toyou, but with knowledge, preparationand determination you can be confidentof beginning your search for capital onsolid footing.

Personal ResourcesBefore you begin your search for capital,you will need to know how much moneyyour business will require. To get anaccurate answer you should consider notonly the costs of starting, but also thecosts of staying in business. Manybusinesses take a year or two to get upand running. This means you will needenough funds to cover the cost ofmaterials, salaries, rent, supplies and otheritems until sales can meet these costs.It’s common for many new businessowners to furnish a substantial amount

own books. Your banker is likely to beimpressed with a neat, complete set ofrecords even if it does not have the professional touch.You must have realistic expectations ofyour bank. In general, expect the bankerto be a valued advisor, in much the sameway as an attorney or an accountant.Also expect your banker to get to knowyour business and your industry so he orshe can make specific recommendationson what kind of loan is best suited foryour company, how to structure thatloan and how to help you chart the bestfinancial course.Keep in mind, however, that whilebankers serve as valued advisors, there are laws prohibiting them from taking anactive management role. These areknown as “lender liability” laws, andbasically state that unless lenders arewilling to accept liability, they should notget involved in making importantmanagement decisions for a business.When you approach a bank for a loan,you should also begin to establishbusiness credit. You can do this by co-signing as an individual for a credit cardin your business name, as well as byestablishing a checking account in yourbusiness name. If you are doing businessunder your own name, set up an accountin your name and use it exclusively foryour business. If your business has its own name, set up an account in the name of the business.When you open an account in the nameof a business, the bank will probablywant to see your “DBA” certificate(Certificate of Conducting Businessunder an Assumed Name, often referredto as “Doing Business As”). You receivethis certificate when you register yourbusiness name with the county clerk.(See Chapter 6.)It works to your advantage to have aseparate business checking account. Thisenables you to use the bank’s name as areference in making businessconnections and in getting credit fromsuppliers. Your account also tells yourbanker facts about your business thatcan be helpful when you apply for a loan.While looking into bank loans, youshould also be aware of credit unions,which offer many of the same servicesas banks. To discuss loan opportunitieswith a credit union, you must first fill outan application and be approved formembership. The advantage of applyinghere for capital is that lending rates andterms are usually better than those of a commercial bank.

TYPES OF BANK LOANSYour banker can help you decide on the best type of loan for yourbusiness and circumstances. Note thatthe language of loans can sometimes bedifficult, so you may want to refer to theglossary at the end of this book to helpyou better understand the terminology.A short-term loan must be repaid in 30days to six months. Small businesseswith an established track record use thisloan for working capital. For example, amanufacturer or retailer might use ashort-term loan to build up an inventoryfor a seasonal increase in sales. If yourcredit rating is good, you can sometimesget the money without having to put upcollateral.A line of credit, sometimes called arevolving line of credit, allows you toborrow and repay repeatedly to meetyour business needs. At the end of theyear or season, the line of credit may berenewed. The benefit of this type of loanis that it allows you to maintain an evencash flow, which in turn can help youtake advantage of special discountsoffered by suppliers or make up forshortage of working capital.A seasonal line of credit is a variationdesigned to help businesses that have astrong cyclical nature. When you apply for a seasonal loan, resist the temptationto borrow more than you need. Likemost other types of lines of credit, youhave to repay this type within a year orpossibly at the end of selling season.An intermediate term loan may run aslong as three years and usually requirescollateral. You might consider it for abusiness start-up, the purchase of newequipment, the expansion of a store orplant or an increase in working capital.You should plan to repay an intermediateterm loan in monthly or quarterlypayments from your business profit.A long-term loan typically runs for morethan three years, requires collateral andmay be granted for business start-ups,purchasing major equipment or movinga plant or store. It is commonly repaid ona monthly or quarterly basis out of cashflow or profit. The loan agreement maycontain provisions that limit yourcompany’s other debts, dividends orprincipals’ salaries or that requireminimum equity or working capital levels. A long-term loan also may require that apercentage of the firm’s profit be usedexpressly for repayment. Collateral for along-term loan may be the assets youare purchasing, supplemented by yourpersonal guarantee, stocks, bonds,certificates of deposit or other businessassets. One long-term loan commonly

used to finance a new business is ahome equity loan.A home equity loan is based on 70 to80 percent of the equity differencebetween the market value of your homeand the amount you owe on it. It usuallyrequires regular payment of interest onlyduring the first five to 10 years. While thismakes it an attractive loan for smallbusiness owners, there is the risk oflosing your home if you cannot keep upthe payments.

The “5 C's”Each loan is unique, and each bankerlooks at a loan for an individual businesson its own merits and terms. But thereare also some basics your banker willwant to know before giving you money.In general, most banks follow the “5 C'sof credit” to rate you as a borrower. Youcan also use these to rate yourself.Capacity: Your capacity is your ability to generate enough cash andprofit to cover your debt. When and howdo you plan to pay back your loan?

14

Personal FinancialStatement

Assets

I (we) own the following:

Cash (checking and

savings accounts) $ ______

Money owed to me (us) $ ______

Notes $ ______

Stocks and bonds $ ______

Insurance cash values $ ______

Home and other

real estate $ ______

Automobiles $ ______

Other $ ______

Total Assets $ ______

Liabilities

I (we) owe the following:

Charge accounts

and other bills payable $ ______

Total payable

on automobiles $ ______

Real estate

loans (mortgage) $ ______

Other $ ______

Total liabilities $ ______

My (our) net worth (total

assets less total liabilities) $ ______

Can the company generate enough topay it back through normal businessactivities? Does the cash flow projectionshow this? Do past revenue and expensestatements and balance sheets showthis? Does the loan make financial sense,or will it be a burden to the company?This dollars and cents assessment usual-ly becomes the determining factor inwhether or not a banker can approve aloan.Capital: The banker will be looking at theextent of your personal investment in thebusiness. Are you a firm believer in yourbusiness? Are you a person who vows tofold if losses exceed a certain amountthe first year? Or are you convinced nextyear will be better?Character: A banker is interested in whatkind of person you are. Are you trustwor-thy? Competent? Reliable? How good amanager are you? Do you handle moneywell? Do you have a satisfactory bankrecord over an extended period? Banksgenerally look for a number of good ref-erences, both professional and personal.Collateral: This may include inventory,accounts receivable or other equity thatcan be used if the original loan paybackstructure doesn’t work. Which of yourassets could be used as security againsta loan? Do you own real estate, stock orbonds, vehicles or equipment? Keep inmind that most banks will not lendmoney based on collateral alone. No matter how outstanding your charac-ter or how much collateral you have, ifyour income tax statement shows youcan’t repay your loan, your bank won’tgive you one.Coverage: This refers to insuranceagainst basic risks. How would the loan be repaid if there was an accident or catastrophe?

Other LendingProgramsNew York State has a comprehensive setof programs administered by variousstate agencies and public authorities andcoordinated by Empire StateDevelopment. The addresses of theseoffices are listed at the end of this book.

THE SMALL BUSINESSADMINISTRATIONThe Small Business Administration (SBA)www.sba.gov offers two basic programs for financing small businesses:Small Business Investment Companiesand the SBA Loan Guaranty Plan.

SMALL BUSINESS INVESTMENTCOMPANIESSmall Business Investment Companies(SBICs) are licensed and regulated bythe SBA. They are privately owned andmanaged investment firms that use theirown capital, plus funds borrowed atfavorable rates with an SBA guarantee,to make capital investments in smallbusinesses.Almost all SBICs are profit-motivated.They provide equity capital, long-termloans, debt-equity investments and man-agement assistance to qualifying smallbusinesses. Their incentive is having anoption to own equity in a small business. There are two types of SBICs: regularSBICs and specialized SBICs, also knownas Minority Enterprise Small BusinessInvestment Companies (MESBICs). Theyinvest in small businesses owned byentrepreneurs of minority groups thatare socially or economically disadvan-taged. For a listing of New York StateSBIC’s, please visit the SBA website atwww.sba.gov

SBA LOAN GUARANTY PLANIf you are turned down for a convention-al bank loan, ask your bank about SBAfinancing. In most cases, the bank candeal directly with the SBA.The chief benefits of SBA-guaranteedloans are longer terms and more money.Many lending institutions will not lendlong-term credit to a small business, butin an SBA guaranteed loan, the risk isshifted from the lender to the SBA.Because of the SBA guarantee, a con-ventional financial institution can alsoprovide more money.

The SBA has a number of other loanprograms including Direct, HandicappedAssistance, Surety Bond Guarantees,Certified Development Company, ExportRevolving Line of Credit and others.Contact your nearest SBA field office tofind out more about these programs.

THE EMPIRE STATEDEVELOPMENT CORPORATIONThe Empire State DevelopmentCorporation (ESDC) www.nylovesbiz.comis a public finance and developmentauthority that participates in a wide rangeof projects throughout New York State inorder to create and retain jobs,particularly in economically distressedareas, by undertaking important projectsthat are not financially or organizationallyfeasible for the private sector alone.Distressed areas are designated on thebasis of a higher-than-statewide averageof unemployment, poverty and personsreceiving public assistance.ESDC efforts are centered in two basicareas: the financing, management, designand construction of major civic projects,and providing financial assistance toindustries and businesses for the purposeof retaining and creating jobs.The Empire State DevelopmentCorporation (ESDC) helps private industrysecure the buildings and equipmentneeded to produce new business andnew jobs or to retain existing jobs. It doesthis by providing funding through low-interest loans and loan guarantees. ESDCis authorized to make loans in connectionwith the construction, acquisition orrehabilitation of industrial plants, researchand development facilities and other

15

Small Business Administration OfficesSBA OfficeSyracuse District Office Federal Building, 5th Floor 401 S. Salina St.Syracuse, NY 13202315-471-9393

SBA OfficeElmira Branch Office 333 East Water St.Elmira, NY 14901607-734-8130

SBA OfficeRochester Branch Office Federal Building, Room 601 100 State St.Rochester, NY 14614585-263-6700

SBA Office Melville Branch Office35 Pinelawn Road, Suite 207WMelville, NY 11747631-454-0750

SBA OfficeBuffalo District Office111 West Huron St.Federal Building, Room 1311Buffalo, NY 14202716-551-4301

SBA OfficeNew York Regional Office26 Federal Plaza, Room 3100New York, NY 10278212-264-4354

eligible business facilities. ESDC also canparticipate in financing the purchase ofmachinery and equipment to be usedwithin the State.For more information about ESDCprograms, contact the Empire StateDevelopment office nearest you. There is a list of regional offices at theend of this book.

The Minority Revolving Loan FundThe Minority Revolving Loan Fund(MRLF) gives minority and women-owned businesses increased access tocapital and helps them leverage publicand private dollars for financing.To be eligible for MRLF assistance, anenterprise must be organized on a for-profit basis, be formally authorized to conduct business in New York State, operate out of a fixed business location,and be certified under the Minority andWomen-Owned Business EnterpriseCertification Program of Empire StateDevelopment. (See Chapter 4 for moreabout certification.) MRLF loans range from a minimum of$20,000 to a maximum of $500,000.MRLF business development loans aremade for working capital or for theacquisition of real property, machinery orequipment. Government contractor loansprovide funds necessary to performgovernment contracts. Franchise loansmay be given to eligible enterprisesseeking to acquire franchises ofnationally recognized corporationslocated within distressed areas.To find out more about ESDC programs,contact the nearest office of EmpireState Development. You will find a listingof all regional offices at the end of thisbook.

Small Business Technology InvestmentFundSmall Business Technology InvestmentFund provides capital for start-up andexpansion as well as for ideadevelopment. Investments normallyrange from $75,000 to $500,000 on amatching fund basis.To apply for this program, you must havea working product model. If you areintroducing a service, you needdocumentation of interest expressed byprospective clients. For more information,contact the nearest office of Empire State Development. You will finda listing of all regional offices at the endof this book.

NEW YORK BUSINESSDEVELOPMENT CORPORATION The New York Business Develop-mentCorporation (NYBDC) is a privatelyowned company in which New Yorkfinancial institutions pool their money toprovide medium and long-term loans tobusinesses having difficulty securingfinancing.Borrowers may use these loans forworking capital, real estate constructionand/or acquisition, leaseholdimprovement, machinery and equipment,moving, restructuring of debt, leveragedbuy-outs, purchase and lease back,leasing, purchase of a company, energyconversion and pollution control. For more information, contact the New York Business DevelopmentCorporation, 50 Beaver Street, Albany,N.Y. 12207, telephone (1-800-923-2504) 518-463-2268, www.nybdc.com

Other Sources of FundingWhile bank loans and other lendingprograms are major ways to finance abusiness, they are not the only sources of capital. You may also want to explorethe possibility of grants, private stockofferings, venture capital and employeetraining funds.

GRANTSGrants are funding from private andpublic agencies to help support specificbusinesses, the money does not have tobe repaid and there may or may not befees involved. To apply, you must obtaina grant application and complete it asaccurately and in as much detail aspossible. Grants are awarded to thosemost likely to succeed, so includeanything you think may be helpful.While locating grant money can bedifficult, it is worth pursuing. It is oftenneglected as a resource, socompetition may not be as fierce as forother capital resources. To look for thistype of funding, contact your locallibrary or small business association. Asyou research, note that governmentgrants are more often than not given toagencies that assist start-up businessesrather than directly to a specificbusiness, so include a search ofagencies that may assist your particulartrade or industry.

PRIVATE STOCK OFFERINGSA private stock offering is a way ofgetting investors without losing controlof your business. You decide whoinvests in your business, as well as howmuch they may participate in financialand managerial issues. By issuing sharesfor purchase, you are still not obligatedto pay interest on the money invested,nor is return on the investmentguaranteed to shareholders. These areboth desirable factors, particularly if youare a new enterprise.There are always people looking for aplace to invest their money. Your banker,lawyer, accountant or business broker may know of someone, and the“business opportunities” columns ofnewspapers may also list persons whohave money to invest. Your ownbusiness contacts may provide leads aswell. Most people rely on a combinationof these different sources. Stock offerings require experiencedlegal help so that they comply withfederal and state laws. Contact yourlegal counsel for further information onhow to proceed.

VENTURE CAPITALIf your business has a good product, a strong management team and ademonstrated market, you might attracta venture capital company. These firmsprovide start-up and other money fornew companies in exchange for equityor part ownership. Venture capitalistsare looking for a good return on theirmoney in a short period of time. Checkyour library for publications on venturecapitalists and the types of businessesin which they invest.

EMPLOYEE TRAINING FUNDSTraining workers can be a significantcost of doing business, particularly if youneed people with special skills. There are State and Federal programs that canbe used to pay part of your trainingcosts. You may also get tax creditswhen you hire workers from certaintarget groups.The New York State Department ofLabor has programs and funding, whichcan assist businesses to train new andexisting employees. For moreinformation visit their website atwww.workforcenewyork.org or call1-800-447-3992.

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Loan ApplicationsRegardless of where you go to apply forcapital, your business documents shouldbe in order and easily accessible. Fromyour business history to statement ofdebt, these should be clear, concise andaccurate. Keep in mind that a lender willgive more credibility to a presentationthat has been reviewed by anaccountant, lawyer or other professional.Here is a list of materials you will need tosupplement your basic business loanapplication:Business plan: Most of the followingitems should already be in your businessplan. If not, consider adding them.Business history: Give a brief descriptionand history of the business, when itstarted, ownership, number of personsemployed and products.Personal history: Describe yourself,emphasizing your work experience andreasons why you feel qualified to operateyour own business.Management resumes: Describe theeducation, technical training,employment and business experience ofeach of your managerial employees.Financial statements: Provide balancesheets, including current balance sheet,for the past three fiscal years. For a newbusiness, provide a projected balancesheet. Also include a revenue andexpense statement for the past threefiscal years, including a statement for thecurrent period.Personal financial statement: Supply apersonal financial statement for eachofficer, principal or stockholder with 20percent or more ownership, showingtheir net worth outside of the business.Debt: List installment debts, contracts,notes and mortgages payable, showingto whom payable, original amount,original date, present balance, interestrate, maturity date, monthly payment,security and whether current ordelinquent.Income tax returns: Provide copies offederal income tax returns (IRS Form1040) for past three years.Accounts receivable: Show amountsdue you, from whom and original date.Loan proceeds: State amount of loanrequested and explain exact purposesfor which it will be used.Collateral: List collateral to be offered assecurity for the loan, with your estimateof the current market value of each item.Purchase offer agreement: Whereapplicable, obtain a purchase offeragreement or dealer equipment quoteshowing exactly what you are buyingand for what price.

Earnings projection: Prepare a detailedprojection of earnings.

A Word ofEncouragementAs you begin to investigate financialresources for your business, you mayfind yourself confused by the technicallanguage used by bankers and otherfinancial institutions. Should you comeacross words you do not understand, askfor an explanation in plain language.Also, get in the habit of taking notes. Thiswill help you later in meetings with suchadvisors as the representatives at yourlocal State University of New York SmallBusiness Development Center.Be aware that with the downsizing of both State and Federal lendingorganizations, some financing programsmay no longer be available at the timeyou are ready to apply.Obtaining capital for your business canbe difficult, but do not be discouraged.There are almost always individuals andagencies interested in taking a risk for achance at financial gain, and who arewilling to lend to someone with goodprospects of success. Remember, America was built by peoplelike you — people willing to take risks.

17

Once you have laid the groundwork foryour business, including organizing andfinancing, it’s time to turn your energiestoward marketing, a carefully plannedapproach to satisfying your customers’needs.Marketing involves nearly everything thathas to do with the sale of goods andservices, from researching the competitionto production, service, delivery, pricing,business location, advertising andpromotion.Effective marketing does not have to becomplex. It is helpful to think of it in termsof the “4 Ps” —product, price, promotionand position.Product refers to the merchandise orservices you are selling (computersoftware, auto supplies, haircuts). Pricetakes into account such things as laborand overhead costs, profit, competitivepricing and customer perception. Whendiscussing promotion, you are looking atways to publicize your product orservice. Position refers to a number ofdifferent factors, including location,shipping, warehousing and distribution.Initially, it will serve you well to have aspecific marketing plan. Later, as yougain experience, you will want to modifythat plan to meet the changing needs ofyour customers and businessenvironment.

THE MARKETING MIXEach business satisfies customer needswith its own unique “marketing mix,” acombination of elements contained in the4 Ps. This includes product planning, pricing, branding, channels of distribution,personal selling, advertising, promotion,packaging, display, servicing, physicalhandling, and fact finding and analysis.Every company has a different marketingmix. As a small business marketer, yourjob is to define the most effective mix tosell your product. To do this, you will needa good working knowledge of the 4 Psand how they can affect the sale of yourproduct or service.

Product: Know YourCustomerThe overall goal of your small business isto make a profit, but your means forachieving that goal is satisfying customers.This may seem obvious, but there aremany businesses that don’t pay enoughattention to the customer. To increase yourcustomer awareness, you have to be ableto answer some basic questions:Who are your potential customers? Bespecific about the kinds of people mostlikely to use your product or service. Arethey working people, retirees orteenagers? Are they people with specialinterests, discretionary income or a lot ofleisure time? What is their income level?Also be sure to distinguish between thepurchaser and the user. You may have totake into account several levels ofintermediaries, such as middlemen,manufacturers’ representatives, brokers,sales agents, distributors and dealers. Forinstance, if you are selling a food item,your direct purchaser may be asupermarket or grocer, which in turn willsell directly to the consumers.Where are they? Know precisely whereyour customers live. Do they live in thecity, the country or suburbia? Are theynearby or out of state?What do they want? Determine yourbest-selling items or services. Also thinkabout what social trends, newtechnologies and other factors are likelyto affect your customers. Will they bemore affected by price, quality orconvenience?When do they want it? Do yourcustomers come to you daily or once ina while? Are their buying habitspredictable or do they come in atunusual times? Do they require rushservice? Perhaps they only buy duringspecial promotions or sales.Why should they buy it from you? Thinkabout what makes your product orservice stand out from the competition.Have you established a reputation for personalized service, reasonable prices or high quality? Perhaps your customersvalue the availability of merchandise or

CHAPTER 4

Selling Yourself

18

the convenient store hours. Other sellingpoints include effective advertising andpromotion and good sales presentations.How do they buy your product or services? There are many avenues for purchasing today, including in-store sales,mail order, direct sales, personal deliveryand wholesalers. Your customer may alsobuy in bulk or on other special terms.In the past, many business peopleexamined their product or service andthen identified potential customers.Today, it’s more common for emergingentrepreneurs to first identify customerneed and then build a business around it.In fact, many sales organizations areguided by the adage, “find a need and fillit.” In either case, the process of marketresearch is critical. This entails gatheringand analyzing information and thenapplying it to your own situation byworking with the various elements ofyour marketing mix. No matter how youcollect your data, when you have theanswers, you will be in a better positionto satisfy your customers’ needs.

MARKET RESEARCHMarket research can be as simple astalking with the people who come intoyour place of business or with anyoneelse you think might be interested inwhat you have to sell.Become acquainted with yourcustomers or potential customers bybeing open and friendly. Ask how yourproducts and services fill their needs andhow you might satisfy their other needs.You can talk to them informally or havethem fill out a simple questionnaire.However you do it, direct feedback fromyour customers is invaluable in planningyour marketing strategy.Market research can also involvesophisticated sampling and surveytechniques, but these may be costly. Ifyou are willing to do some of theresearch yourself, excellent information isoften available for free or at a nominalcost from trade associations, tradepublications, library reference books andgovernment sources, including your localState University of New York SmallBusiness Development Center (see

Chapter 2) and the federal SmallBusiness Administration (see Chapter 3).Another useful reference source for smallbusiness owners is Sales Managementand Marketing magazine, whichpublishes a “Survey of Buying Power”that gives a breakdown of population,households, retail sales by type ofbusiness and total purchasing dollars foreach county in the United States, as wellas for cities with populations of morethan 10,000. The 2000 U.S. Census gives detailedinformation on the U.S. population andits buying habits by individual censustract. For information, contact the U.S. Bureau of Census, telephone 301-457-4100. You can also refer to the section on“Mailing Lists” in your local Yellow Pages,which includes businesses and agenciesthat sell marketing information.

TARGET YOUR MARKETOnce you have a profile of yourcustomers in terms of age, gender, incomelevel, geographic area and interests, focusyour time, energy and resources on thosewho are, or may be, your best customers.It is important to do this because youhave limited resources and cannot be allthings to all people.Business experts often cite the “80/20rule” to emphasize this point. As a rule ofthumb, 80 percent of your profits derivefrom 20 percent of your customers, and80 percent of your sales come from 20percent of your typical line of productsor services.To see if the 80/20 rule applies in yourbusiness, make a list of your bestcustomers and a list of your bestproducts and/or services. Next, see if youare reaching your target market. List 10ways you could do a better job ofreaching your targeted customers — the 20 percent that gives you 80 percent of your business.What are some good approaches totargeting your market? Try to focus on aparticular geographic area (perhaps a 25-mile radius of your place of business);your best-selling product or service (if you have a winner, promote it); andthe people most likely to patronize yourbusiness (farmers, professionals, familieswith small children, sports fans).

ANALYZE YOUR COMPETITIVE ADVANTAGESTo most advantageously situate yourself in the marketplace, you’ll need to know what your competitors aredoing. Competition is a broad conceptthat encompasses not only the specific

businesses in your particular industrythat offer similar products or services,but other businesses or companies that,although not direct competitors, satisfythe same basic needs you do.If you are working on a short-term plan(roughly one year), you will want to lookprimarily at those products that areexactly the same as yours or very similar.As you consider longer-range planning,you will want to research or analyzecompetitors that are less similar,especially those that have a strongmarket presence and more advancedtechnology.For example, if you own a small deli or fast food restaurant, your primarycompetitors are other delis and fast foodrestaurants located in your general areathat offer quick service at reasonableprices. But other potential competitorsexist outside your industry. Grocerystores now offer salad bars and ready-to-eat foods and convenience stores areopening delis. Your customers’ needs —inexpensive food and quick service —can now be fulfilled elsewhere.Continually ask yourself why peopleshould buy from you rather than fromyour competitors. The most successfulentrepreneurs have learned thatanalyzing the competition is a never-ending job. To know what you should bedoing, you must know what yourcompetitors are doing. Find out about their products, prices andservices. What are they doing right?What are they doing wrong?Being aware of what the competitionoffers will help you develop a marketingmix that keeps your customers happy.You can use the “Competitor Checklist”below to begin your analysis.

Price: Getting it RightA successful business is one that has what the customer wants, at theright moment and at an acceptableprice. But making the numbers add upso that they are fair to both you andyour customer can be a complex job.You need to cover costs, make a profit,attract customers and build salesvolume, all at the same time. Prices mustbe competitive and within yourcustomers’ reach.

COMMON EQUATIONSBefore you set your price, you mustconsider several factors. Following aresome equations that can give you anoverview of your costs. The cost of goods sold is the cost ofyour beginning inventory pluspurchases, minus ending inventory.

The gross margin of profit (also knownas gross profit or maintained markup) isthe difference between the cost of goodssold and the price at which they sold.Net profit equals gross profit minusexpenses, or how much you make on anitem after all expenses are taken intoaccount.Initial markup represents the differencebetween the cost of the item to you andyour original selling price. It is usually thefirst price you offer. When merchandisedoes not sell readily, this original sellingprice must be lowered until the goodsdo sell.The worksheet shown on this page is anexample of one that can be used tocalculate your pricing.

PRICING STRATEGYThere are many other considerations thatgo into intelligent pricing, and it pays tolook at these closely. The uniqueness of what you offer is an important factorin setting prices. The more distinctiveyour business is and the more personalattention you give your customers, themore flexibility you will have in pricing. For example, retailers that offer storecredit, guarantees, a flexible return policyand quality personalized service canusually charge more for their products.Too often, small businesses will set priceswithout concern for competitive offerings.If your customers can satisfy their needsin an equally convenient manner for alower price somewhere else, your pricing

19

Competitor ChecklistMake up a sheet for each competitorand rate yourself as better, equal orworse in each category. As you scoreyourself, ask how you could improveyour score in each area by changingyour marketing strategy, and thinkabout how potential customersperceive you.

Better EqualWorse

Prices nnnn nnnn nnnnQuality nnnn nnnn nnnnProduct selection nnnn nnnn nnnnCustomer attention nnnn nnnn nnnnService/repairs nnnn nnnn nnnnReliability nnnn nnnn nnnnExpert advice nnnn nnnn nnnnGuarantees nnnn nnnn nnnnCustomer credit nnnn nnnn nnnnCredit cards nnnn nnnn nnnnLocation nnnn nnnn nnnnStore hours nnnn nnnn nnnnStore appearance nnnn nnnn nnnnAdvertising nnnn nnnn nnnn

formula needs to be modified.There are several psychologicalimplications to the price you set. Forexample, many businesses will set pricesthat are just under a higher dollar amount(e.g., $.99, $29.99, $149.99, etc.). While theprice isn’t fooling anybody, manycustomers have a mental barrier aboutpaying more than, for example, a dollarfor a product. Customer research iscritical in pricing strategy. Determine whatyour customers are willing to pay for aproduct or service before you offer it.Remember that your pricing cancommunicate an image for your productor service. Make sure it is saying the rightthing. If you market yourself as the low-cost provider for a product or service, it isimportant that you have the lowest price.People aren’t willing to pay the same pricefor the no-frills product as for the productwith all of the “bells and whistles.” Similarly,if you position your product or business asa “cut above” the competition, you shouldcharge more for it. If you offer additionalservices, your customer should be willingto pay for them.A good example of how pricecommunicates about a product can befound in tuition pricing at major colleges.A major university was trying to improveits image as one of the top 20 schools inthe country. University officialsdetermined that if they raised tuitionrates to make them comparable to othertop 20 schools, prospective parentswould perceive them to be in the same“league” as the other schools. In fact,every time this university raises tuitionprices, applications increase.When it comes to pricing, be willing toexperiment. Try different systems andcompare them with those of yourcompetitors. And do not forget to askyour customers how they feel aboutyour prices.

Promotion: SellingYour ProductYou have a great product targeted to a specific market and set at a fair price.Your next step is getting the word out. This can be accomplished throughadvertising, promotion and generalpublic relations, which are necessary formost businesses. In fact, advertising andpromotion are essential prerequisites tosuccess, since they work together tobuild customer awareness of yourproduct or service.Although all of these elements workinterdependently, each has its ownfunction and place in business. Thepurpose of advertising is to proclaim the

qualities and advantages of a product orservice by making a direct sales appealin local newspapers, on radio and ontelevision.Promotion is a more general effort topublicize your business and may includeeverything from giveaways tosponsorship of worthy causes. Yourbusiness card and business letterheadare important promotional tools. So isyour business sign.Public relations entails communicating aspecific message and educating potentialcustomers about your business.In all cases, it’s important to define yourbusiness’ unique selling proposition (USP)and then make it the focus of yourpublicity.

ADVERTISING AND PROMOTION STRATEGYPlan your course of action carefully andkeep track of the results. You can wastemoney very quickly by advertising in amedium that fails to reach your potentialcustomers or that costs too much relativeto what you have to spend. On the otherhand, spending too little on advertisingcan hurt your business in the long run.Here are some basic principles that canhelp you plan:

• Establish an advertising budget.• Investigate media resources and determine which media reach your customers most effectively.• Target your ads to your customers.Discounts may appeal to one groupwhereas an emphasis on quality or service may appeal to another.• Advertise your best products. Use the80/20 rule to decide which products arereally worth advertising. (This does notapply to new product or new serviceintroductions, which may need a boostfrom advertising to reach their potential.)• Try to capture the market when themarket is there. Advertise at peak salestimes.• Keep your advertising messages clearand simple.• If you do not feel comfortable creatingyour own ads, ask the people at thepublication or station to help. In manycases, they will help you at no charge orfor a reasonable fee.• Check regularly with your customers tomake sure your ads are working. If youare advertising in a number of media, askyour customers where they learnedabout your business. This will help you tomeasure the effectiveness of your media.• Compare cost with results.

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Sample Pricing GuideProduction and/or materials Cost

Labor:Your salary ____________Others’ salaries ____________FICA ____________Unemployment insurance ____________Workers’ compensation and benefits ____________

Overhead:Rent ____________Equipment ____________Supplies ____________Vehicles ____________Insurance ____________Bookkeeping ____________Legal services ____________Advertising ____________Maintenance ____________Depreciation ____________Taxes ____________Telephone ____________Interest on loans ____________Cost of credit ____________

Marketing:Commissions ____________

Delivery: ____________

Total: (a) ____________Add profit: (b) ____________Total a. & b. = Suggested selling price: (c) ____________

CHOOSING YOUR MEDIANewspapers: Newspapers fall into threegeneral categories: dailies, weeklies andlocal “shoppers,” which are distributedfree. In addition, some newspaperspublish special editions, such as a springbridal fair insert or a summer recreationinsert, which focus on narrowly definedgroups of consumers. Consider running aseries of small advertisements for thecost of a single full page. As a rule, smallspace used on a regular schedule paysbigger advertising dividends than “one-shot” or infrequent larger ads. Also checkinto the possibility of “co-op” advertising,in which part of the cost of an ad is paidfor by suppliers in return for includingone or more of their brand-nameproducts.Magazines: Manufacturers, distributorsand suppliers of business services caneffectively use ads in trade or businessassociation publications. Stick to local orregional magazines and specialtypublications that reach an important partof your market. Mass circulationmagazines such as Newsweek, Esquireand Redbook are generally priced out ofreach of the small business advertiser,although today’s technology allows youto target specific regional distributions.Television and radio: These electronicmedia can be an effective alternative tonewspaper advertising for somebusinesses. Most stations have their ownaudience, which varies in size andcharacter according to the time of dayand the show being aired. Advertisingcosts will depend on the length of thead, when it runs and how often it runs. Astation representative can give youdetails. To use radio or televisioneffectively, target your advertising toappeal to the audience it reaches, buythe air times that reach your market andrepeat ads. You might consider recordingyour own ad to give your customers achance to hear your voice.Direct mail advertising: This methodworks best if you have a narrowly targetedcustomer list with names and addressesof good customers and potentialcustomers. There are also ways toheighten the impact of mail advertising.For example, insert enclosures withoutgoing invoices. (Do not send billsalone; make the stamp do its full job.) Tellyour regular customers about sales aheadof time. Announce a new service orproduct. Sometimes the manufacturer ordistributor will help pay for this.Door-to-door methods: Handbills,business cards, circulars and other“throw-aways” can be a good way to

announce openings or sales. But takecare to avoid placing them where theywill litter premises and irritate potentialcustomers or others. Some businesses,such as restaurants, pizza parlors and carwashes, put flyers on cars in largeparking lots. If you decide to do this,make sure you have permission from theowners of the lot. Never put throw-awaysin mail boxes. Only the U.S. PostalService is authorized to do that. And donot distribute them in communitieswhere ordinances specifically forbid it. Yellow Pages: A small display ad herecan be a very helpful form of advertising,particularly in your first year or two ofoperation. After that, you may only wantyour name listed in bold print under theappropriate categories, although manybusinesses find that a display adcontinues to be an effective way to bringin new business.Billboards: Certain industries or services are better suited for this kind ofadvertising than others. For example,hotels and motels can make effectiveuse of billboards on major long-distancetravel routes. In general, the messagemust be short and easy to read to makean impact.Telemarketing: Some businesses maychoose marketing by phone, by eitherusing in-house staff or going to theoutside and hiring a telemarketing firm.By using this method you can target apreselected market using eitherpersonalized or automated callingservices. If you use an automatedtelemarketing service, be sure the systemdisconnects automatically when it reaches an answering machine orwhen the person answering hangs up soyou are not paying for wasted time.Internet Website: Most businessestoday have a website to promote theirproducts or services. The depth of thewebsite can vary from a simple one-page outline to a more sophisticated sitewhere online purchasing is conducted. Awebsite is an integral part of an overallmarketing plan and should beconsidered thoroughly beforeimplementing. There are programs todaythat will allow you to create your ownwebsite or you can also hire a websitedesigner to create one for your business.Networking Events: It is beneficial toattend events that specifically attractyour potential customers. Check allcalendars of events and attend as manyas possible. This is a casual effective wayto open up and expand your customerbase.

PUBLIC RELATIONS STRATEGYPublic relations, or “PR,” is the process ofdeveloping an image by identifyingtarget audiences and establishingmutually beneficial relationships withthem. Effective public relations is morethan just charitable sponsorships and getting your name in the paper. Effectivepublic relations makes businesses run better, increases sales and helps toensure long-term organizational success.One component of public relations ismedia relations. This differs fromadvertising in that businesses do not payfor media time or space. Rather, the goalis to get your business in the localnewspaper or on television, which candramatically raise public awareness ofyour company. A business will benefitfrom the implied third-partyendorsement from the media. In fact,some studies estimate that a mention inan editorial section of a newspaper or onTV or radio is eight times morepersuasive than a comparableadvertising mention.Getting your name in front of the mediarequires a good deal of work andrelationship building. Many firms hirepublic relations agencies that alreadyhave the media contacts and necessaryknow-how to proactively “pitch yourstory” to the media.Public relations also includes a host ofother activities, such as special eventsand promotions, internal employeecommunications, preparing for andresponding properly in a crisis situation,and strengthening ties with thecommunity or other specific groups.Much like advertising, effective publicrelations should be a part of a largercommunications plan, based on researchwith measurable objectives and anevaluation component. A public relationsprofessional can help you design andexecute an effective plan for yourbusiness.

Position: FromLocation toDistributionYour business location is essential forretailing and important to manufacturingand service businesses as well. That’s why you must make a painstaking andexhaustive study before you choose asite. Patience and planning at this stagewill pay dividends later on.Search for sites that deliver maximumcustomer availability at the lowest cost.

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In general, all businesses catering to thesame class of customer increase sales ofother operations in the same physicalarea. Shopping is most convenient forthe customer when all requirements canbe found with a limited cluster of stores.That’s why it is a good idea to locatenear other stores that cater to the samecustomer you intend to reach. Some ofthese stores may handle many of thesame lines you will stock, so make sureyou can be competitive.

TYPES OF LOCATION Ordinarily, the best locations for retail business are also the mostexpensive, and some, such as a store in aregional shopping mall, may be availableonly to businesses that have widespreadname recognition.Regional shopping centers draw from an area of several hundredthousand persons within a radius of sixor more miles. Branch operations of largestores, franchises and chain store unitsare common in these one-stop shoppingcomplexes, which offer convenientparking. Parking convenience is a majorreason retail businesses continue tomove out of downtown shoppingdistricts and into regional shoppingcenters. However, the start-up businesswill usually find these high-cost locationsunlikely settings.Central business districts in cities oncewere considered prime retail locations.Some still are, but with major retailersmoving to regional shopping centers,many city centers cater mostly to thelunchtime crowd and business-to-business service providers. Rents,however, may still be high. If rents havedropped sufficiently, and your trafficstudies reveal an active market, then thecentral business district might offer yoursmall business a real opportunity.In some large cities, there are secondarybusiness districts located just outside thedowntown area. Carefully evaluate thesedistricts and look for newer areas ofdevelopment that have resulted fromrecent growth. In those areas, businessesare often located in neighborhoodshopping centers that offer convenientparking. On the other end of the scale from theregional shopping center is theneighborhood center, sometimesreferred to as a strip mall, which offers anopportunity for shops that carryconvenience goods or offer personalservices to customers who live withineasy walking distance. A neighborhood location often has asupermarket as its focal point, and is also

a prime location for pharmacies, smallgroceries, fruit and vegetable stores,delicatessens, hardware stores, shoerepair shops, beauty and barber shops,candy stores, cleaners and card shops.These locations are good only if there isan existing or potential need locally forthe business you have in mind.Community shopping centers fallsomewhere between the giant regionalcenters and the small neighborhood centers. They offer the advantages ofaffordable rents and good management as well as sufficient visibility, traffic andcustomer convenience.When you evaluate a location, find outwhy businesses similar to yours havebeen successful or unsuccessful at thatsite. Determine what rent yourcompetitors are paying and try to ratethe quality of their management, theirservice to customers and their generalreputation. If you start a new business inan established neighborhood, you mustprepare to do better than yourcompetition.

HOME-BASED BUSINESSESPerhaps you are considering starting ahome-based business. Because oftechnological advances and commercialactivity on the Internet, manyentrepreneurs are choosing this costefficient alternative. There are many factors besides expensesto consider when deciding to locate yourbusiness in your home. You’ll need todedicate space that will be used only forbusiness purposes and your home willneed to be technically capable tosupport your business. Do you have theself-discipline it will require to separateyour personal activities from businessactivities? Are there local zoninglimitations that you’ll need to adhere to?These are just a few of the questions thatyou’ll need to answer before deciding ona home based business.

TRAFFIC STUDIESWhen weighing your location options, itpays to conduct traffic studies. If yourbusiness depends on drop-in traffic, do apedestrian traffic study — simply countthe number of people passing by. Youwill need to do this more than once toget an accurate measure. Use differentdays of the week and different times ofday. If possible, make a survey to find outwhere they are going. Numbers alone donot make a market. You need todetermine how many of the passersbymight be buyers and then break downthe total number in terms of theirestimated buying power, gender, age

and spending habits. No matter howgood a location appears to be, if peopleare not there to shop, then they areunlikely to buy from you.If your potential location is along ahighway, consider that customers maynot want to shop at your store if yourparking is inadequate, if the local traffic istoo congested or if the automobile trafficpattern makes it difficult to get in andout of your parking lot. Anotherconsideration is the reason people aredriving the highway. Are they driving it toget to shopping areas or is it mainly acommuter route? The more you knowabout traffic patterns and habits, thebetter you’ll be able to assess theviability of your site.Check to see if there are any plans forconstruction of new roads or businessesthat might affect your customer traffic. A local commercial realtor should be ableto give you the status of any vacantshops or property. For information aboutpotential or pending infrastructurechanges, contact the New York StateDepartment of Transportation (518-457-6195) as well as county and local governments in your area.

RENTING PROPERTY

RentThe rent you can afford depends on yoursales volume. The “100 percent” locationthat permits a high volume will commanda high rent. In a less favorable location,you can expect to pay a lower rent. In theend, you are going to have to negotiate.Make comparisons between the rents ofneighboring stores and the property youare considering leasing. Physicalcondition, including the need forrenovation, repairs or changes, can be animportant factor. If substantial repairs orchanges are necessary, can you talk thelandlord into making them, or do youhave to take on the obligation, perhapsin return for a reduced rent for the termof the lease?It is a good idea to have an attorney lookover your lease before you sign. The bestlease is one that anticipates allcontingencies and then is written toprotect the welfare of both principals.Be wary of signing a short-term, non-renewable lease. You need time to buildyour business and some assurance thatyour rent will not increase unreasonablyin the next few years. Make note of whatyou can and cannot do with theproperty and who pays for such servicesas snowplowing and electrical repairs. Be sure you can live with the terms ofthe lease before you sign it.

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RealtorsOne of the professionals to whom you can turn for help when it comes toselecting a location is your local realtor. A reputable realtor is one of your bestsources for information about vacancies,rents paid for different store locations, thebuying habits of the local community andthe direction of local business growth. Names of local realtors and real estateboards are included in the New YorkState Real Estate Directory. Thispublication, as well as other helpfulassistance, is available from the New YorkState Association of Realtors, P.O. Box122, 130 Washington Ave., Albany, N.Y.12210, telephone 518-463-0300.

Lease guaranteesSome small businesses may havedifficulty obtaining good commercialspace due to limited capital orinsufficient credit ratings. For thesebusinesses, the U.S. Small BusinessAdministration (SBA) may be able toprovide assistance through its loanguarantee program. The SBA works inconjunction with private insurancecompanies to issue insurance policies forsmall businesses guaranteeingcommercial rent payments. In effect, thisis a type of credit assistance that allowsa qualifying company to obtain a lease ina choice business location.

Locations for manufacturersPrime industrial locations abound in New York State. Things to look forinclude a labor pool with the skills youneed, good transportation facilities,access to major highways and adequatepower. Empire State Development hasvarious programs assistingmanufacturers to expand or locate aplant in New York State. Please visit ourwebsite at www.nylovesbiz.com orcontact an ESD regional office listed atthe end of this book.

DISTRIBUTIONIf you manufacture an item, you have a number of distribution options inaddition to selling directly to yourcustomer or going directly to the retailer.The best method will vary with yourproduct and the volume of business youdo. Some small manufacturers rely on amanufacturer’s representative, some on awholesaler; and others on a combinationof the two. Whatever you decide, it isimportant to choose a distributionstrategy and stick with it, making surethat your other marketing efforts work inconcert with your distribution plan.

A wholesaler purchases large quantitiesof merchandise at a discount price,warehouses and handles themerchandise, and sells to retailers andothers. Wholesalers, distributors ormiddlemen, as they are sometimescalled, reduce the amount you receiveper item but save you substantial timeand effort. A manufacturer’s representative sells oncommission as an agent for differentclients with similar product lines. In otherwords, they are salespeople who workfor several different companies. Manysmall manufacturers find that their totalsales in a region are not sufficient tosupport a full-time salesperson, in whichcase the manufacturer’s representative isa viable alternative. You do the shipping,billing and collecting, just as you would ifyou sold directly to the retailer. Yourgross profit per item will usually behigher than it would if you went througha wholesaler, but the commission caneven things out.One way to test-market a product is toarrange with a retailer to sell it onconsignment. The store receives acommission for items sold but does notpurchase them. This method allows bothyou and the retailer to test customerresponse before committing to theproduction in earnest and tying up yourmoney.Whichever system you choose, developa friendly working relationship with yourdistributor. Provide dependable products and furnishadvertising display material, if possible.

Expanding YourMarketsAs your business grows, there may comea time when you want to branch out andfind new markets. Two large, profitableand often overlooked areas are selling togovernment and selling overseas.

SELLING TO GOVERNMENTFederal, state and local governments canbe important customers for yourbusiness, and selling to them is easierthan you might think. Governmentagencies are always on the lookout fornew suppliers, and there are laws whichprovide an incentive for agencies tocontract with small and minority- orwomen-owned businesses. Governmentcan be a ripe area for the enterprisingsmall business person.

Every year the federal governmentspends billions of dollars for items suchas hamburgers, sleeping bags, circuitboards, wrenches, T-shirts and paint, justto name a few. It also buys services suchas architects’ sketches, engineers’surveys, maintenance work, research anddevelopment. Another big buyer is NewYork State, which spends more than $8.5billion annually on products and services.Empire State Development offers anumber of resources for expandingbusinesses, including referrals andmarketing advice. Its ProcurementAssistance Unit can give you informationto help find the right government marketfor your business, help land the contractand help throughout the terms of thecontract.In addition, ESD can help you connectwith government agencies looking foryour product or service; improve yourgovernment marketing strategy; meetbuyers at procurement workshops, tradeshows and special events; learn aboutsubcontracting opportunities; workthrough and understand bid paperwork;provide information to meet yourcontract; and get paid on time for workyou have completed.ESD also publishes an on-lineprocurement newsletter, The New YorkState Contract Reporter, that lists allState agency bids worth at least$15,000, as well as contracts let byauthorities, commissions, public benefitcorporations and counties. By using thisone source, you can get informationabout contracts that are up for bidacross the state, subscribe on-line atwww.nyscr.com.In addition to opportunities to market tothe state, ESD specialists can help youfind subcontracting opportunities withmajor corporations that provide goodsand services to state governmentagencies.To help minority- and women-ownedbusinesses attract customers from publicand private sector buyers, New YorkState has established a statewidecertification program. Once certified,your company officially will berecognized by all State agencies andmost authorities as a bona fide minority-or women-owned business enterprise.And you will be listed in a directory thatis available in print and on computer diskto New York State agencies andauthorities, as well as to other potentialbuyers, including federal governmentagencies and major corporations.

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The benefits of certification are substantial. A number of State programsare available exclusively to or targeted to certified minority- and women-ownedbusinesses in the areas of financing,bonding, education, training andtechnical assistance. For moreinformation contact ESD at 1-800-STATE-NY.

INTERNATIONAL TRADEIn today’s global economy, theinternational market is large and growingat a rapid rate. With shifting politicalenvironments and economic systems,opportunities abound for potentialinvestors in a range of fields, fromagriculture, pharmaceuticals andtransportation to technology, informationsystems and environmental cleanupequipment.In conjunction with the State Universityof New York Small BusinessDevelopment Centers and local businessorganizations throughout the state,ESD’s International Division participatesin export seminars and offers individualcounseling to firms and business ownerswho are interested in exporting New York State products. The International Division also promotesNew York products through trade showsand trade missions in selected foreignmarkets, and assists in matching foreignbuyers with manufacturers or exportersof New York State goods.Services are also available to link New York State firms with foreigncompanies that are interested in jointventures, acquisitions or licensingarrangements. For more information onESD’s international services, check withyour nearest ESD regional office orcontact the International Division,telephone 212-803-2300.Other sources of export assistanceinclude trade and professionalassociations, chambers of commerceand local or regional world trade clubs.The U.S. Department of CommerceForeign Commercial Service has agentsthrough-out the world, while theInternational Trade Administration hasoffices throughout the United States. For further information on theseagencies contact the U.S. Department of Commerce, telephone 202-482-2000.The U.S. Small Business Administrationactively promotes export conferences inthe United States and periodic trademissions abroad. For more information,contact your nearest SBA office (seeChapter 3).

Those seeking to take advantage of international markets will also findvaluable information in several referencebooks, including The Exporter’sEncyclopedia, published annually byDun & Bradstreet Corporation;Expanding into Exports, published byPrice Waterhouse; A Basic Guide toExporting, published by the U.S.Department of Commerce; and Building an Import/Export Business byKenneth Weiss (John Wiley & Sons). Dun & Bradstreet also offers a widerange of publications and reports oninternational business and the creditworthiness of some 1.4 million companiesin more than 100 countries.For more information about New YorkState’s vast array of services available to small business owners, call 800-STATE-NY.

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Good record keeping is one of the keysto business success. Having a complete,accurate and up-to-date picture of yourbusiness will allow you to keep track ofyour progress and set realistic goals, aswell as to spot problems and correctthem before they get out of hand.Sound records will help you controlcosts, save on taxes, negotiate withbanks for business loans and managepayroll records and sales tax. Thediscipline of record keeping will alsomake you a more cost-conscious andeffective manager.There are two basic parts to a recordingand accounting system. The first isbookkeeping, which entails recording theincome and expense transactions foreach business day. The second is makingan analysis, or accounting, of yourrecords.

Creating a SystemFor most start-up businesses, the necessary tools for record keepinginvolve no more than a personalcomputer with an accounting programor a few ledgers, and files for storingreceipts, purchase orders, inventorysheets and other paperwork. An officesupply store should have all the materialsyou need to set up a system on paper, orto supplement your computerized one.There are advantages to computerizingyour record keeping system, includinggood organization, faster input andoutput of the information you need, andless paper to track. In addition, computerprograms make it easier for youraccountant to reconcile your books at alater date, and they help simplifycorrespondence and other routinebusiness tasks. There are some basic elements ofbookkeeping with which you mustfamiliarize yourself. You will need certainrecords for tax purposes and others thattell you how the business is progressing. If you are a corporation, however, you willneed to add to the list minutes ofmeetings, corporate resolutions andshareholder agreements.Formats for record keeping can vary depending on the type of business.

Here are the most typical categories andthe form of record required:• Incoming merchandise/supplies:Purchase orders to suppliers; a receiptlog (filled in when orders are received);inventory sheets.• Outgoing merchandise/services:Sales slips; invoices; contracts; purchaseorders (from customers and clients);credit slips.• Incoming revenue: Daily log (dailysummary of cash receipts, daily salesledger, accounts payable, journal, computer program entry, etc.).• Outgoing revenue: Check stubs or“one-write” systems; check disbursements;journal petty cash vouchers; invoices (billsyour business has to pay).• Sales tax records: Same as outgoingmerchandise/services and incoming revenue.• Employer records: If you hireemployees, you must keep all yourrecords on income tax, withholding,Social Security and unemployment taxfor at least four years.• Tax returns: Federal, state and localreturns.Be aware that you will need to keep yourrecords for varying periods of time. Howlong records should be retaineddepends on several factors, includingfunction of the records, fiscal and legalrequirements, and industry specificregulations. Additionally, there isconsiderable variation in retentionperiods depending on the industry inwhich a business is involved.Entrepreneurs should be familiar withgeneral laws and regulations governingtheir records and those specific to theirindustry, to understand what records toretain, how long and why. For moreinformation the Association of RecordsManagers and Administrators (ARMA)provides general information on its website that may be helpful: www.arma.orgor call 800-422-2762.The information you keep will form animportant foundation for your business’history, current status and futureobjectives and possibilities. The moreorderly you are at the outset, the greaterthe chances of keeping organized asyour business grows and develops. Here

CHAPTER 5

Keeping the Books

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are some basic components of a goodrecord-keeping system:

BUSINESS CHECKBOOKTo monitor the money flowing into andout of your business, it’s vital to separateyour personal and business expenses.Establishing a business checkingaccount will simplify your life, especiallyat tax time. It’s also the first step towardbuilding a business relationship with yourlocal bank. (See Chapter 3.)

INCOME LEDGERAlso known as your cash receipts journal,this is a record of your business income.It is a detailed, daily listing of all incomingcash from sales, collections on accountsand other sources. Not only is thisinformation critical for tax purposes, itcan help you identify your bestcustomers and best-selling products orproduct lines.Your income ledger need not beelaborate. If you do not have a computer,a notebook or lined paper will do.Organize your receipts in categories thatcan help you analyze the success of yoursales efforts and planning. Thesecategories should include: date, receivedfrom, taxable sales, sales tax, non-taxablesales and total sales.Even if you have a bookkeeper oroutside accountant set up your records,you must decide for yourself how muchinformation or detail you need. Forexample, a restaurant owner may wantto separate day from night sales. Agrocer may want to separate meat andgrocery sales. Remember to keep itsimple. Record only the minimum datarequired to meet bank and governmentrequirements and your own needs.

EXPENDITURE LEDGERThis is also called a merchandisepurchase or accounts payable ledgerand is used to track your expenses. It’simportant to take time to think about theexpense categories that will meet yourneeds, since you will also use thesecategories for your cash flow projection,revenue and expense statement (alsoknown as a profit and loss statement)and balance sheet.

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documents verifying the expense and itspurpose. If you must write a checkpayable to cash or to yourself to getcash to pay a business expense, includethe receipt for the cash payment in yourrecords. If you cannot get a receipt, put awritten statement in your recordsdetailing the date and reason for theexpenditure.

SUPPORTING YOUR ENTRIESCanceled checks, paid bills, duplicatedeposit slips and other items thatsupport entries should be filed in anorderly manner and stored in a safeplace. Memorandums or sketchy recordsthat approximate income, deductions orother items affecting your tax liability arenot adequate. Keep records supportingitems on a tax return until the statute oflimitations for that return runs out. Keep documentation for any money orproperty that your business receives,even if it is from a non-business source.In some cases, these items are nottaxable, which can mean added savingsfor your company. Also record any assetsthat you can depreciate in a permanentrecord. You will need this and anysupporting documentation to takeadvantage of depreciation, capital gainsand other allowances.Books and records of your businessmust be available at all times forinspection by the Internal RevenueService (IRS). The records must be keptas long as they may be needed in theadministration of any IRS law.

TAX CONSIDERATIONSPrevious returns will help you preparefuture tax returns and makecomputations if you later claim a refund.They may also be helpful to the executorof your estate or the IRS if your originalreturn is not available.Self-employment tax is part of thesystem for providing Social Securitycoverage for people who work forthemselves as sole proprietors orpartners. These benefits, which are paidout when you retire, are disabled or die,depend on how much you earn. Yourrecords should show the earnings thatwill be taxed.

Basic BookkeepingThe way you choose to keep your booksis more than an exercise in organizingpaperwork. It has a direct effect on howyou get taxed, so it is advisable to checkwith an accountant before settling on amethod.

Your taxes are based on a one-yearperiod, which is called a taxable year.This can be a calendar year or a fiscalyear consisting of 12 consecutivemonths. In most cases, it is a calendaryear beginning Jan. 1 and ending Dec. 31.Your taxable year is established whenyou file your first federal income taxreturn, and you must continue to use thistax year unless you get permission fromthe IRS to change it.You can use either a cash or accrualmethod to record your businesstransactions. Using the cash method, youreport income when the money isreceived and report expenses when thebills are paid. This system is familiar to most peoplebecause it is the same one most peopleuse to keep their checkbooks up to date.By law, cash accounting cannot be usedby corporations (other than Scorporations), partnerships that have acorporation (other than an Scorporation) as a partner and taxshelters.Using the accrual method, you reportincome when it is earned (whether youhave received payment or not), andreport expenses when you incur theobligation to pay them.Generally, if your business is a soleproprietorship you can use eithermethod or a combination of the two aslong as you apply your accountingmethod consistently and your recordsclearly show your income. On the otherhand, if the production, purchase or sale of merchandise is anincome-producing factor, you must keepinventory records to clearly showincome, and you must use the accrualmethod to record your purchases andsales.There are two basic systems to keepbooks: single-entry and double-entry.The single-entry system, which is easierto keep, is preferred by many smallbusinesses. The self-balancing double-entry system, although more complex,gives you more control and greateraccuracy.

SINGLE-ENTRY BOOKKEEPINGThis system concentrates on the revenue and expense statement and noton the balance sheet. It is a partialsystem that records the flow of incomeand expense using a daily summary ofcash receipts, a monthly summary ofreceipts and a monthly checkdisbursements journal. There are anumber of simplified single-entrybookkeeping systems sold in commercialstationery stores that have sample filled-

Some typical categories for yourexpenditure ledger might be: rawmaterial/ merchandise; rent; owner’sdraw; salaries; payroll taxes and benefits;sub-contractors; professional services;advertising expenses; car/truckexpenses; building expenses/improvements; equipment purchase;utilities; telephone; postage; freight;business supplies; repairs/maintenance;dues and publications; insurance;taxes/licenses; interest paid/bankcharges; and miscellaneous. Purchases ofequipment, vehicles or furniture aregenerally depreciated over time.Some of your purchases or outlays willbe for cash, while for others you will bebilled or will pay by check. In either case,always post them regularly to yourledger. You may find it useful to breakdown each item into smaller categories.For example, under “overhead expenses,”you may want categories for payroll, rent, utilities and supplies. You can easilyfind your total sales, purchases andexpenses — for each item and insummary — by adding the amountsrecorded daily in each column of yourledger book.If all this bookkeeping seemsintimidating, you may wish to considerusing a “one-write” check system tocombine your checkbook, expense andpayroll ledgers. With a one-write system,every check you write is automaticallyrecorded in your expenditures ledger bya carbon strip attached to the back ofeach check.

Establishing Good HabitsGetting off to a good start means settingup efficient practices and habits rightfrom the beginning and sticking to them.These range from establishing routinesfor writing checks to figuring yourearnings for self-employment taxpurposes.

HANDLING EXPENSESDeposit your business receipts in aseparate bank account, and if possible,make all your disbursements (businessexpense payments) by check. The onlytime you should write a check payable toyourself is when you are withdrawingincome from your business for your ownuse — in other words, when you payyourself your salary or are borrowingfrom the business. In general, avoidwriting checks payable to cash.Establish a petty cash fund for smallexpenses. Any business expense paid bycash should be supported by

27

in pages for your guidance.Here is an example of single-entrybookkeeping in a retail businessorganized as a sole proprietorship:

Daily summary: You begin the day witha fixed amount of petty cash in the cashregister (for example, $25). This allowsyou to make change and small paymentswithout writing checks. Every time youmake a payment from the cash register,fill out a petty cash slip and place it withthe receipts in the cash register.At the end of the day, total the amountof sales and sales tax shown on yourcash register tape or sales slips. Enterthese amounts ($53.75) and ($3.76) onthe summary sheet and then add themto get the total receipts ($57.51) for theday. Count the money in the cashregister ($76.51) and add any petty cashslips ($6) to find the total cash ($82.51).Then subtract your initial petty cashamount ($25) to determine the totalcash deposits for the day. This figuremust be the same as total receipts($57.51).Deposit your day’s receipts into yourbusiness checking account. You willbegin the next day with $19 cash and $6in petty cash slips in the cash register.When the petty cash slip totalapproaches your fixed amount of pettycash, write a check made out to “pettycash” for the amount of the outstandingslips, cash the check and add the cashto the register.Monthly summary: Transfer totalreceipts, sales tax and cash sales (netsales) from each daily summary to amonthly summary and total, asillustrated.The net sales totals will give you your monthly taxable income ($1,612.33).Your monthly summary sheet will alsoprovide the records necessary forpreparing your New York State sales andlocal use tax returns.

Check disbursements journal: Depositall your receipts in your businesschecking account and, if possible, makeall disbursements by check. All checksdrawn on your business account shouldbe entered daily in your journal. For each check you write, enter the date,payee and total amount, and enter thedollar amount in the proper column. Insome cases, such as petty cash, you willmake entries in several columns becauseyou used the money in several differentways. At the end of the month, add eachcolumn to determine total expenses. Youmay want to prepare an annual summaryto help in preparation of your income tax returns.

DOUBLE-ENTRY BOOKKEEPINGIn a double-entry system, you usejournals and ledgers. First you enter allyour transactions in a journal. Periodically— usually monthly — you enter summarytotals of your transactions in ledgeraccounts. This is called posting.There are five types of ledger accounts— income, expense, asset, liability andnet worth (equity). The system is self-balancing because each transaction isshown as a debit entry in one accountand a credit entry in another. Total debitsmust always equal total credits. If theydo not, then the books do not balance,and it is evident

an error has been made. Well-keptdouble-entry books can force you tospot problems that you might nototherwise see.At the end of your accounting period,double-entry books allow you to prepare a revenue and expense statement thatreflects current operations and a balancesheet that shows the overall financialposition of your business in terms ofassets, liabilities and net worth. You canuse these statements to analyze theoverall health of your business and asdocumentation for borrowing and taxpurposes.

Daily Summary of Cash Receipts

Date: _______________

Cash sales $ 53.75

Sales tax 3.76

Total daily receipts $ 57.51

Cash on hand

Cash in register (including unspent petty cash)

Coins $ 14.50

Bills 35.00

Checks 27.01

Total cash in register $ 76.51

Petty cash slips 6.00

TOTAL CASH $ 82.51

Less: Change and petty cash

Petty cash slips $ 6.00

Coins and bills 19.00

(unspent petty cash)

Total change and petty cash fund $ 25.00

TOTAL CASH $ 57.51

Monthly Summary of Cash ReceiptsDate Daily receipts Sales tax Net sales

June 2 $ 57.51 $ 3.76 $ 53.75

June 3 67.83 4.43 63.40

June 4 77.15 5.05 72.10

June 5 54.62 3.57 51.05

June 6 66.13 4.33 61.80

Monthly Totals:* $ 1,725.19 $ 112.86 $ 1,612.33

* Although this chart does not itemize receipts for 30 days, the monthly totals reflect a

30-day period.

Check Disbursements JournalCheck Check Material Net Deductible Truck Employee

Line Date Paid to and Utilities Rent Line Interest Taxes and Auto Misc. Personal WithholdingNo. Amount Supplies Payroll and Fees Expenses Taxes

1 1

2 2

3 3

4 4

5 5

6 6

7 7

8 8

Analyzing YourRevenue and ExpenseStatementRegardless of the bookkeeping systemyou use, your records should be detailedenough to prepare an accurate revenueand expense statement at the end ofyour tax year. This statement is a briefsummary of what has taken place duringthe course of the year, and its sectionscontain information that can help youmake everyday decisions.The government has an interest in yourrevenue and expense statement, sinceyour tax return is almost entirely derivedfrom it. Your banker, too, will want tohave revenue figures and details of thecomputation of your revenues over aperiod of years. Even if you did not have to prepare a revenue and expensestatement for these purposes, it wouldbe worthwhile to do so because of thevaluable information it discloses.To understand the revenue and expensestatement, you’ll need to be familiar withthe following terms. As you continue toread this section, it will be helpful tofollow along on the sample revenue andexpense statement provided on page 39.

GROSS PROFITIn general, this is the amount of incomegenerated by the sale of your productsand/or services less the cost of materialsyou used to make and/or supply them.To determine your gross profit, begin byfinding the cost of goods sold.Calculate the cost of all inventorypurchased throughout your businessyear plus any inventory you started withat the beginning of that year. (Includefreight paid on purchases in thiscalculation.) Subtract from this figure thetotal cost of inventory in your possessionat the end of that same year. Thedifference between the two items is thecost of the goods sold.

If you take this figure and subtract itfrom your total sales for the year, less anyreturns and allowances on sales, you willhave calculated gross profit.

EXPENSESThese include all of the expenses incurredin carrying on a business during thecourse of the year, such as wages andcommissions; freight, trucking and express;printing and stationery supplies; heat, lightand power; rent; insurance and certaintaxes; and telephone and fax charges. Do not include the cost of property orequipment as expense items. These arecapital items that will stay in the businessfor a period of years and a percentage oftheir cost is depreciated each year as anannual operating expense.

OPERATING PROFITOperating profit shows the profit fromactual operation of the business. To findyour operating profit for the year, deductexpenses from gross profit. It does notinclude the cost of financing thebusiness or any financial income earned.

INVESTMENT AND DEBTYou will need to list all of yourinvestment income and debt on yourrevenue and expense statement.Examples of financial income are interestreceived and discounts that have beengiven to you. Examples of debt areinterest paid by you and discountsallowed by you to customers.

NET PROFITThis is the final figure on the bottom lineof the revenue and expense statement.To find your net profit — the bottom line— add financial income to your netoperating profit and deduct expenses.

CAPITAL ASSETSThese include items such as property orequipment. If you sell any capital assets,keep the results separately so that you

can account for capital gains and losseswhen you file your taxes.

WITHDRAWALSWhen an owner withdraws money froma business, the withdrawals are notconsidered expenses for tax purposes.On the other hand, the wages of theowner or the partners, which are paid forpersonal services actually rendered,should be included among the expenses.You need to make this distinction toknow your true costs. For tax purposes, individual owners or partners must report their wholeincome, whether classified as wages orprofit. To provide this information, youmust record the dollar value of allwithdrawals of goods, checks or cashmade by the owner or owners and alsokeep a record of payments for theirpersonal services.

PROFITNet profit minus withdrawals during theyear represents a profit that is stillavailable for distribution to the owners orfor reinvestment in the business. This netamount may or may not be in the formof cash. It may be reinvested in the formof merchandise or capital goods or usedto repay debts during the year.

OVERHEADThis refers to expenses that cannotdefinitely be charged against individualitems produced or sold. Overheadincludes rent, light, heat, property taxesand depreciation. These expenses areusually independent of the volume ofbusiness you do. If you total these andtake them as a percentage of your sales,you will gain an idea of the extent towhich these general and continuousexpenses are eating into your potentialprofits. The percentage rises whenbusiness is poor and falls when sales aregood.

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29

Analyzing YourBalance SheetThe balance sheet is like a snapshot — itshows what your business owns, what itowes and what it is worth at a specificpoint in time, which is usually the closeof business on Dec. 31 or on the last dayof your tax year.The balance sheet is a list of assets(what you own), liabilities (what youowe) and capital (what you are worth).Capital is the difference between assetsand liabilities. In other words, the amountleft over after you deduct what you owefrom what you own is what you areworth. This is sometimes calledproprietorship, equity or net worth.To better understand the basiccomponents of the balance sheet, usethe illustration provided here to see howall the parts fit together.

CURRENT ASSETSThis includes cash, merchandise and supplies that would ordinarily beturned into cash during the course of the coming year.Cash on hand: This includes currencychecks, bank drafts and money orders.Merchandise inventory: This is the stockof goods on hand at the time thebalance sheet is drawn up. Even with themost complete set of inventory records, itis necessary to take a physical inventoryat the end of the year. If accurateinventory records are kept (and usuallythey are not), it is still necessary to countstock at the end of the period. In the caseof a selling or service establishment, thegoods on hand are classified separatelyaccording to whether they are finishedgoods for sale or supplies to be used inthe operation of the business. In the caseof a manufacturing establishment, rawmaterials and goods in process are alsoclassed separately.Accounts receivable: This shows howmuch your customers owe you.Promissory notes: If your customershave given you promissory notes, onlythose that mature during the year arelisted as current assets.

FIXED ASSETSFixed assets are those which are used incarrying on the business, but which arenot expected to be sold or completelyused during the course of the year.Depreciation: On a balance sheet,deductions for depreciation are calledreserves for depreciation. Each year theamount is increased by the amount ofdepreciation that is considered to havetaken place.

To have all this information in properform for the balance sheet, your recordsshould show the original cost, annualdepreciation, total depreciation taken todate and net book value. Net book valueis the original cost minus the totaldepreciation to date. You should alsomake a note of the estimated number ofyears the equipment is expected to lastand the amount of depreciation for eachyear.There are many other assets that may beobtained from time to time, but they areof minor importance in a small business.Prepaid insurance, prepaid interest andstocks of office supplies on hand areamong such items.

LIABILITIESDivide liabilities into current and fixed.Current liabilities include promissorynotes and goods for which you have topay during the course of the coming year.Fixed liabilities include long-term loans,such as mortgage or equipment loans.

CAPITALThe difference between assets andliabilities of your business is its net worthor proprietorship or capital. It is the capitaloriginally invested in the business withadditions or subtractions. Additions maycome through new money invested in thebusiness or through retention of some ofthe profits. Subtractions may comethrough withdrawal of some of the moneyfrom the business or through losses.In the case of a partnership, the share ofcapital belonging to each of the partnersis shown separately on the balance sheet.This can be important when profits aredistributed, and it is absolutely necessaryin case the partnership is dissolved. Yourrecords should show each partner’soriginal investment and the share of theprofits to which each is entitled minuswithdrawals. If your business is organizedas a corporation, the capital section ofthe balance sheet should list the capitalstock outstanding at the original issueprice. Any profits that have been allowedto accumulate in the business are shownin a separate subdivision of the capitalsection called surplus.

USING THE BALANCE SHEETThere are some cases when a balancesheet is required, such as when applyingfor a loan. For your purposes, however,the balance sheet is useful because ofthe wealth of information it contains. The following are a few of its uses.Status of working capital: To stay inbusiness you have to watch both yourliquidity and your solvency. You areinsolvent as soon as your liabilities exceed

your assets. If a condition like that persistsfor very long, you are almost certain to gobankrupt. Even though you are solventand your assets exceed your totalliabilities, you may still be in seriousdifficulty if you are short of funds. If youcannot meet your current liabilities whenthey come due, you may have to closedown. For this reason, it is very importantto check the size of current liabilities andcompare them with current assets. Thebalance sheet provides this information.Frequent and periodic estimates ofcurrent assets and current liabilities fromday-to-day records can help you arrangeyour finances to avoid a temporaryshortage of funds and at the same timemake the best use of the funds you have.Current ratio: Current assets divided bycurrent liabilities is known as the currentratio. This formula gives you a concisepicture of the liquidity of your business.Some accountants suggest that thecurrent ratio should be 2-to-1, or asufficient amount of current assets tocover your current liabilities twice. Thebest figure depends on your particularbusiness. If the ratio falls to 1-to-1, youmay be risking your credit standing.If you decide that you are operating ontoo narrow a margin, your problems willnot necessarily be solved by borrowingmore money because this involvesadditional interest costs. You need toweigh the cost of borrowing against thefinancial gain and other advantages ofhaving more cash in the business.If your business is chronically short ofworking capital despite all your attemptsto remedy the situation, you might try toacquire additional permanent capital,either by taking in a partner or sellingshares of stock. Since no interest is paidon permanent capital, you avoid buildingup your interest costs.A business can have too much as well astoo little working capital. If the balancesheet and the supporting records —when analyzed along the linessuggested above — show that thebusiness has more working capital incash than it really needs, you have astrong case for either paying offoutstanding loans or possibly expandingthe business. You might even considerwithdrawing money from the businessand putting it to some more profitableuse.Inventory: This is an important item inyour current assets section. Businesspeople frequently discover they havefallen into the practice of carryinginventories of goods far out ofproportion to the amount of businessthey are doing. This is most likely to

Sample Revenue and Expense StatementYOUR BUSINESS NAME

REVENUE AND EXPENSE STATEMENT (INCOME STATEMENT)FOR YEAR ENDING DECEMBER 31, 20___

Total sales for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 21,458.00

Less returns and allowances on sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 350.00

Net sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 21,108.00

Total sales for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 21,458.00

Merchandise inventory, January 1, 20__. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,560.00

Total merchandise purchases during the year . . . . . . . . . . . . . . . . . . $ 14,952.65

Less returns and allowances on purchases. . . . . . . . . . . . . . . . . . . 121.88

Net merchandise purchases. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,830.77

Total merchandise handled during the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,390.77

Less merchandise inventory, December 31, 20__ . . . . . . . . . . . . . . . . . . . . . . . . . . 3,250.00

Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,140.77

Gross profit on sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,967.23

Less operating expenses:

Wages and commissions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,590.00

Freight, trucking and express . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84.72

Printing and stationery supplies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25.00

Heating, light and power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 305.00

Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 600.00

Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.00

Property taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165.00

Telephone and telegraph. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45.60

Depreciation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 650.00

Loss on bad debts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50.00

Total operating expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,530.32

Operating profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,436.91

Add financial income

Interest received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 19.02

Discounts allowed us . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125.50

$ 144.52

Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 60.00

Discounts allowed customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32.09

$ 92.09

Net financial income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52.43

Net profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,489.34

Less withdrawals during the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,142.19

Net profit after withdrawals, available for distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 347.15

30

develop if there is no conscious effort toestablish adequate inventory control. Ifthis happens, it might be the perfecttime to run a sale on out-of-date or out-of-season merchandise or offer yourcustomers a special bargain.If you reduce the average inventory you

carry, your cash position will improve,because it will mean that less money istied up in goods. Of course, you wouldnot want to cut down your inventory ifthe cuts resulted in any significantdecrease in sales.

Credit sales: Another item to watchclosely is accounts receivable. Accuraterecords of all accounts receivable andlosses incurred on bad debts provide thebasis for deciding whether it pays toextend credit. Your credit sales may bestimulating your sales, but you shouldweigh the cost of extending creditagainst its benefits.

The loss sustained on bad debts, whichyou determine by periodically reviewingyour outstanding accounts receivable, isnot the only factor to consider. Too muchcapital tied up in receivables can makeyou short on cash, which in turn canmake it impossible to take advantage ofcash discounts. It can also furtherincrease your costs if it makes it neces-sary to borrow to extend credit.You have to figure on bookkeeping andcollection expenses associated with the

extension of credit. These costs can buildup rapidly if you let your accountsreceivable get out of hand. If you areoffering your own line of credit, investi-gate the use of major credit cards. Thecost of using these cards can be mini-mized if you go through a merchantsassociation, chamber of commerce orother similar group.Remember, one of the keys to staying healthy and profitable is to keeptrack of your finances. Sound record

31

Sample Balance SheetYOUR BUSINESS NAME

BALANCE SHEETFOR YEAR ENDING DECEMBER 31, 20__

ASSETS

Current assets

Cash on hand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 54.95

Cash in bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 548.63

Merchandise inventory. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,250.00

Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 325.00

$ 4,178.58

Fixed assets

Real estate — land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 950.00

Real estate — buildings

Original cost. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,000.00

Less reserve for depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000.00

4,000.00

Furniture and fixtures

Original cost. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 600.00

Less reserve for depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100.00

500.00

Delivery truck

Original cost. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 985.00

Less reserve for depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200.00

785.00

6,235.00

Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,413.58

LIABILITIES

Current liabilities

Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,050.75

Notes payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000.00

Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,050.75

Capital or net worth

Capital, January 1, 20__ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,015.68

Profit after withdrawals

January — December 31, 20__ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 347.15 7,362.83

Total liabilities and capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,413.58

keeping will provide the foundation youneed whether you decide to do it byhand or computer, by yourself or withthe help of an accountant.However you do it, take time to investigate all your options and don’t beafraid to ask for assistance to get started. A constant awareness of the financialhealth of your business is one of themost important factors in building aprofitable, long-lived venture.

A computer is the most efficient andaccurate way to store, organize andretrieve information, and is ideal fortackling such repetitive tasks as inventorycontrol, accounting, billing, mailing listmaintenance, correspondence and ordertracking. It performs these tasks throughthe use of software applications, whichare as much a part of an informationsystem as the computer itself.As you begin planning your informationsystems, you will have to consider whattype of equipment and software bestsuit your business. If you are starting anew business, or are unfamiliar withcomputer technology, you will also wantto consider what kind of training you willneed and how to get it.In making these decisions, you may wishto consult an expert. If you choose tobecome your own consultant, youshould read reviews on equipment, alsoknown as hardware, and softwareapplications. Check computer magazinesand trade journals that are gearedtoward your line of business. It is alsoadvisable to take a personal computercourse or two to gain hands-onexperience with word processing anddatabase and spreadsheet programsbefore making any major investments incomputer technology.Here are some important questions toask yourself before you purchase acomputer and related equipment:• What do I want a computer to do for

my business?• What hardware will I need to get the

job done?• What software will I need to get the

job done?• What will be the time and cost of

inputting data into the computer?• Who is going to operate the system?• What investment in training costs,

including time, will I have to make for the computer to be of value?

• When all the start-up costs are taken into account, including financing costs for hardware and software, training and the cost of inputting data, is it really more cost effective than the wayI do it now?

Reducing your cycle time will make youmore responsive to the rapid changestaking place in today’s marketplace. Youcan gain a true competitive advantageby being first with new, innovativesolutions to your customers’ evolvingneeds. This emphasis on quality andcustomer satisfaction is important for asmall business that wants to distinguishitself and create a profitable niche.

Evaluating Time andCostWith information at your fingertips —product availability, price, previous orders,account status — you can not only meetyour customers’ expectations, but youcan also exceed them by anticipatingneeds and filling them. But at what cost?Even assuming an information systemcan fulfill all your needs, you must askyourself if it justifies the expenseinvolved. It’s an important question, andthe answer to it will depend on twothings: a cost analysis that will detail thesavings you can expect using the systemand your feeling for your business andthe local business climate.You don’t need to do a rigorous costanalysis to see if an information systemwill be a worthwhile investment. For amore practical approach, particularly inthe case of a small business, you neednot do much more than a few simplecalculations to get an estimate of thebreak-even point for your technologyinvestment.A break-even point is the amount of time and income that it will take topay back your initial investment. This iscalculated by dividing the total cost ofthe information system investment —hardware, software and services — bymonthly or annual benefits. As anexample, if your initial computerinvestment was $8,000 and yourmonthly budget reflects $800 permonth for computer savings, it will take10 months to pay off your investment.

BUYING VS. LEASINGIf you’ve decided that you really want tocomputerize, but capital is a concern,you may want to think about leasing

CHAPTER 6

Computer Connections

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What a Computer CanDo for YouThe key to success in today’scompetitive business environment is notcutting costs but controlling them, inother words, finding ways to do morewith less. There is no better tool to assistyou in controlling costs than aninformation system.By giving you a complete, accurate, up-to-the-minute analysis of yourcompany’s finances, an informationsystem can alert you to over-expenditures, allowing you to maketimely adjustments to reduce yourexpenses. It can also assist you in yourmarketing efforts by storing customerinformation and keeping your inventorycurrent. And because a computer cangenerate information faster than byhand, you will find your employees ableto do more in a shorter period of time.Computers can perform a wide range oftasks, many of them invaluable to thesmall business owner. These tasks rangefrom basic word processing and datamanagement to accounting and desktoppublishing. Therefore, it is important toknow exactly what you want yourcomputer to do for you.Start by making a thorough assessmentof the special needs of your business. Doyou want to save clerical time? Get helpwith cash flow forecasting, billing orinventory? Perhaps you want to keepbetter track of orders, inventory ormailing lists. Whatever the answer, acomputer should pay for itself, and forany related training and operationalcosts while it provides improvedproductivity and cost control.In addition to the benefits of havingready access to information needed toperform traditional financial tasks, aninformation system can assist you ingathering and analyzing information thatwill enable you to find new ways to dobusiness. You can use such informationto eliminate unnecessary steps in yourbusiness processes and to improve orreduce your cycle time, that is, time ittakes to perform certain functions.

options. Leasing can offer a number ofadvantages for a growing business,starting with the ability to preservecapital by avoiding a down payment.Leasing also makes it easier to stayahead of the technology curve byreducing or eliminating the cost ofupgrading to new equipment.Depending on the type of lease youselect, you may also realize taxadvantages through this type offinancing. For example, with an operatingor open-end lease, you deduct the leasepayments directly as a business expenseeach year.Perhaps the easiest way to arrange forleasing is to deal directly with the financedepartment of an equipmentmanufacturer or deal directly with acomputer retailer. Some lease programsare specifically designed for small tomid-size companies.

Choosing a HardwareSystemA personal computer (PC) is the mostbasic level of an electronic informationsystem. In its simplest form, a PCincludes a monitor, a keyboard and acentral processing unit (CPU). As youmove beyond the basic PC, you’ll findthat there are two broad classes of tech-nology from which to choose — theLocal Area Network (LAN) and a mid-range system.Essentially, LANs are communication sys-tems that link multiple PCs. At their sim-plest, in what are known as “peer-to-peer” LANs, they permit users to swapfiles and share such “peripherals” asprinters or modems. More sophisticatedLANs are built around a powerful, cen-tralized PC called a “server” and whichruns specialized network operating soft-ware. Server-based networks can giveeveryone in your organization access tocritical applications and data that resideon the server.If you would like further information onLANs and personal computers, there areseveral books and trade magazines onthe subject. (See Appendix A.) You mayalso choose to consult a computer pro-fessional who can help you evaluate yourneeds and what would work best foryour business.

SoftwareDepending on your business, you may find off-the-shelf computer pro-grams designed specifically for an enter-prise of your type. Or you may find more

general programs for accounting, smallbusiness management, word processingand database management that you canadapt to your needs.You will want to find programs that areuser-friendly or easy-to-use. Not all pro-grams are easy to use, and some requireyou to already know about a particularsubject, such as accounting, before youcan use them efficiently. Others haveinstructions that are extremely complex.Since learning a program takes time andtime is money, know what you are get-ting before you purchase. If you are notsure, talk to others in your line of busi-ness to see what they use. Check withlocal high schools and community andcollege adult learning programs, whichoften offer courses on general softwarepackages for word processing, spread-sheet and database management. Youcan also read computer magazinereviews of off-the-shelf software pack-ages, and ask consultants about cus-tomized software, designed specifically for certain industries or fields.

TrainingThe information you retrieve from yourcomputer system is only as accurate asthe data you put into it. Therefore, youand your employees will have to learnhow to use the computer and softwareapplications you have decided to putinto place. How much training willdepend on how sophisticated the infor-mation system is and how much previ-ous experience you and your employeesmay already have.In a small business most of the trainingwill probably be done on a one-on-onebasis. Most software packages comewith instruction manuals which youshould make available to your employeeson an as-needed basis. It may be worththe investment to send your staff to anoutside training program. Or you mightchoose one person to attend an outsidetraining program with the understandingthat he or she will then be responsible for training the rest of the staff. Not onlywill you save money, but you may alsohave the beginnings of your own infor-mation systems department.Training may seem an unnecessaryinvestment, particularly if you are tryingto conserve your financial resources. Butby not training your staff, you run the riskof lost time, costly errors and a lot offrustration. The expression “garbage in,garbage out” refers to careless input ofinformation that results in useless orincorrect output from your computer.

Protecting YourInformationProtecting your data and information is acritical component of planning yourbusiness’ information system. Notplanning appropriately leaves a businessvulnerable to many external componentsthat can devastate the business’operations. The main concerns should beto protect the business informationsystem from computer viruses, prohibitentry from external computers and usersvia the Internet and to create a backupsystem of your business information.Email viruses are a major concern whenconsidering protecting your computersystem. The best way to prevent“catching” a virus is to obtain up-to-dateanti-virus software. A firewall is a form ofprotection that prevents unauthorizedaccess to a network. In general, a firewallpermits one way access to the Internet;but prohibits entry from the Internet intoyour computer network. This is a mustfor an Internet business. Backing up datareally means to copy data entered intoyour system to another source. This isanother must, if you ever experience aproblem with your system, it may beimpossible to retrieve or find yourbusiness data. Having another copy ofthe data will prevent most crises frombeing permanent. The level ofsophistication you use depends on theinformation you gather. If you have aninformation intensive business, it wouldbe wise to have a higher quality backupsystem and to explore a professional’sopinion. For those with a simplerinformation system, it may be as easy ascopying files to a disk or CD.

Support SystemsIf you feel you’re too busy managingyour business to become a computerexpert, there are many places to turn foranswers and support. For instance, youmay want to check with your peers inlocal business or trade associations.Another excellent resource for advice and expertise is a “user group,” an association of individuals who use aparticular type of hardware and/orsoftware. They share their experience,knowledge, success, failures andsolutions and often work closely withmanufacturers to shape new products.Many user groups publish regularnewsletters and have general meetingsthat allow for networking in addition toproblem-solving and sharing. Look forlistings of computer user groups in

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newspapers and local and nationalcomputer publications. The Associationof PC Users Groups (APCUG) is aninternational organization supportingcomputer user groups. For moreinformation, contact APCUG, P.O. Box 671294, Dallas, TX 75367-1294,telephone 800-558-6867;www.apcug.orgIn addition, the Internet offers businessesa wide range of communications toolsand information resources that can helpthe small business owner gain acompetitive edge.

Planning for the FutureMuch of the current demand for informa-tion systems in large and small compa-nies is generated by three pressures:cost, quality and time. More than everbefore, the ability to collect, analyze andshare information has become a competitive edge. It’s the key to becom-ing an organization that stays on top ofthe marketplace and makes timely deci-sions in favor of its customers.Deciding to invest in a computer systemis the first step towards improving theavailability of resources, skills and sup-port for your business and increasingoperating efficiency at all levels of theorganization.

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This final chapter outlines broad areas ofregulation that are common to allbusinesses. You’ll find summaries of keypoints in the areas of licensing, taxes,health and safety, insurance, andtrademark and business name registration.There are many special Federal andState regulations that are not coveredhere but that affect, on a selective basis,everything from food processing andmanufacturing surgical gloves to door-to-door solicitations. Be sure tothoroughly investigate any that apply toyour specific business. Also keep in mindthat this chapter is not a substitute forsound legal advice. If you havequestions, it is advisable to bring themup with the appropriate agencies or withyour lawyer.In addition, if you find yourself entangledin a confusing maze of governmentregulations, you can get help in cuttingthrough red tape from the OmbudsmanUnit of Empire State Development’sDivision for Small Business. Theseindividuals serve as advocates for NewYork’s small business community byexpediting and solving the manyproblems that small businesses mayencounter with government bureaucracy.For more information call 1-800-STATE-NY or contact any regional ESD office.The addresses are printed at the back ofthis book.

Licenses and PermitsLicenses and permits from federal, stateand local governments give individuals,corporations and partnerships theauthority to carry on specific businessactivities. Hundreds of businesses aresubject to licensing by one unit of gov-ernment or another. Retail shops, taxiand moving services, theaters, bowlingalleys, restaurants, plumbing and electri-cal services, auction houses and ridingacademies are just a few of the manydiverse businesses covered by govern-ment regulations.In addition, New York State licenses a wide range of occupations includingdentists, nurses, shorthand reporters, public school teachers, funeral directors,social workers, private investigators and

employment agencies. These licenses usually involve the payment of fees andproof of qualification by examination.It is your responsibility to know if yourbusiness requires licensing. Before youbegin operation, carefully research theapplicable state and local laws. Checkwith your town, village, city and countygovernments to make sure you havecomplied with all local ordinances. Thebest way to begin is to call your countyclerk’s office to obtain local governmentrequirements. You may also need tocheck with your local planning board,zoning board and building inspector.

GOVERNOR’S OFFICE OFREGULATORY REFORMThe New York State Governor’s Office ofRegulatory Reform helps new andexpanding business with New York Statepermit and licensing requirements. Thestaff of skilled permit coordinators,backed by a computerized permitinformation system, can give youcomprehensive information on all Statepermits and licenses.If your business project is complex andrequires the involvement of severaldifferent agencies, the Office ofRegulatory Reform can provide a MasterApplication Project (MAP) form toidentify, consolidate and expeditepermits or licenses. The permitcoordinator contacts the relevant Stateagencies, which are required to respondwithin legally set deadlines.The Office of Regulatory Reform canalso coordinate meetings for applicantswith unusually complex businessprojects to present their proposals to theappropriate permitting agencies. Thegoal is to foster the exchange of ideasand provide an opportunity for anapplicant to receive official guidance ona one-to-one basis.Additionally, the Office provides acomprehensive review of proposed andexisting rules and administrativeprocesses to determine whether theyrepresent a sensible approach toregulation that achieves objectivesestablished by the Legislature.To find out more about services, or totalk with a permit coordinator, contact

CHAPTER 7

Government Regulations

35

the Governor’s Office of RegulatoryReform, Agency Building 1, 4th Floor,Albany, N.Y. 12220-0107, telephone 518-474-8275 or toll-free (in New York State)800-342-3464. A database of over 1,000state permits can be found on GORR’swebsite www.nys.permits.org

REGISTERING YOUR BUSINESSNAMEIf, like most businesses, you choose to operate under a name other than yourown legal name, you must register withthe clerk of the county in which yourbusiness is located. To do this you willneed a Certificate of ConductingBusiness Under an Assumed Name,commonly referred to as a “DBA” (doingbusiness as) form. Numbers for offices ofthe county clerk can be found in theblue pages of your local telephone book.If you are a sole proprietor or simplepartnership starting a business fromscratch with no employees and nopermit requirements, then filing a DBAand registering with the New York StateDepartment of Taxation and Financemay be the only legal steps you have totake before you begin doing business.

REGISTRATION MARKSRegistration marks distinguish the origin or ownership of merchandise andcarry certain legal protections.Registration of a mark will help toprotect against infringement of the markby other parties. Federal trademark lawpreempts state trademark law.There are several different kinds of marks.A trademark is a word, brand name,symbol (or any combination of these)used by a manufacturer or dealer toidentify and distinguish specific goodsand products. Kleenex, for example, is atrademark for a certain brand of facialtissues. One helpful source ofinformation about trademarks is theInternational Trademark Association, 1133Avenue of the Americas, New York, N.Y.10036, telephone 212-768-9887.A service mark distinguishes certainservices. For example, Realtor identifies amember of the National Association ofRealtors.

coverage for your particular situation,discuss your needs with a New YorkState-licensed insurance agent or broker.

GENERAL LIABILITYYour business — and in many cases, youpersonally — can be sued if someone isinjured or property damaged either whileon your business premises or as a result of your business operations. Liability fordamages may be due to negligence,imposed by law or assumed by contract.If one of your customers slips on a wetspot on your floor and sustains apermanent injury, that wet spot could putyou out of business if you are not insuredagainst liability. The same could be true ifone of your employees breaks ordamages a valuable item in a customer’shome while making a delivery.A liability insurance policy typicallyprovides legal defense against a suit andreimbursement of damages, up to thepolicy limits, if you are found liable.Policies are written for specified monetarylimits, with stated coverages andexclusions. To insure the broadestpossible protection of your assets, havean insurance professional negotiate thespecific coverage suitable to a particularbusiness.

PROPERTYProperty insurance protects yourbusiness against loss caused by thedestruction of a part or all of yourproperty by fire, windstorm, explosion,falling aircraft, riot and other disasters.The standard policy lists the perilscovered and can be broadened orrestricted, depending on the needs ofyour business. Typical property insurancepolicies provide coverage to buildingsand structures, business contents andproperty, and the property of others inthe care, custody and control of theinsured.A fire insurance policy is usually requiredwhen you want to obtain a mortgage. InNew York State, you can get fireinsurance, regardless of your businesslocation, through the New York PropertyInsurance Underwriting Association,which also provides insurance againstvandalism, malicious mischief, sprinklerleakage and rent or business interruption.It insures properties meeting minimumstandards of insurability that are not ableto obtain coverage in the open market.For more information, contact aninsurance agent or broker, or the NewYork Property Insurance UnderwritingAssociation, 100 William St., New York,N.Y. 10038, telephone 212-208-9700;www.nypiua.com

If your business is located in especiallyhigh-risk areas, you may want toconsider purchasing special crimeinsurance to protect against incidents ofburglary and robbery.

BUSINESS INTERRUPTIONIf your business is closed for a perioddue to some type of catastrophe, youwill want to consider businessinterruption insurance, which helps payfor loans or debts until the business isback in operation.

BUSINESS LIFEBusiness life insurance is used to protecta business or the family of a businessowner from financial loss resulting fromthe death of someone associated withthe business. If you are a sole proprietor,such a policy can be used to helpdispose of your business in the event ofyour death. You must decide if you wantit liquidated by sale in the open market,left to your children or otherbeneficiaries, or sold to your employees.Cash from an insurance policy can makethese transfers easier.In a partnership or limited liabilitycompany, the most common use of lifeinsurance is to insure each partner forthe benefit of the other partner orpartners in conjunction with a buy-and-sell agreement. This enables the survivoror survivors to buy the deceased interestand to continue operating the businesson a reorganized basis. The family of thedeceased can be guaranteed immediatecash upon liquidation of its businessinterest.Some businesses will want to investigatekey employee life insurance. Thisprovides protection to offset financiallosses due to the death of a valuableemployee. Split dollar plans enable theemployer to retain key selectedemployees by helping them to purchaselife insurance and additional retirementbenefits at a relatively low cost.

TaxesNEW YORK STATE DEPARTMENTOF TAXATION AND FINANCEThe Tax Department has established anInternet site that provides access to taxforms, instructions, publications andother pertinent information. The addressis www.tax.state.ny.us.The Tax Department also provides a fax-on-demand service (24 hours a day,seven days a week) to order copies ofselected forms and publications. To orderforms, you must have access to a fax

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A service mark distinguishes certainservices. For example, Realtor identifies amember of the National Assoiation ofRealtors.A collective mark is a mark used by themembers of a cooperative, association,labor union or other group to identify anddistinguish the goods or services of itsmembers. The International LaborCommunications Association (ILCA), forexample, is a collective mark thatidentifies an organization for editors,writers and others who write for unionpublications.A certification mark is used in connectionwith the goods or services of any personother than the owner of the mark tocertify regional origin, quality, accuracy,material, mode of manufacturer,production by labor union or othercharacteristics of the goods or services.“Made in the USA” is one example.Under New York State General BusinessLaw, you may file for trademark andservice mark registration with theSecretary of State, Miscellaneous RecordsSection, 41 State St., Albany, N.Y. 12231,telephone 518-474-4770.You can register trademarks, servicemarks, collective marks and certificationmarks used in interstate commerce withthe Commissioner of Patents andTrademarks, United States Patent Office,Washington, D.C. 20231, telephone 1-800-786-9199; www.uspto.gov

Business InsuranceYou are not required by law to haveliability, property damage or other typesof business insurance, but very fewbusinesses can realistically operatewithout some form of optional coverage.Chief among these are general liabilityinsurance and property insurance. Insome situations, life insurance may alsobe important.The New York State Department ofInsurance supervises all insurancebusiness in New York State. It licensesinsurers and makes periodicexaminations of their financial condition.It also licenses and supervises allinsurance brokers, agents and insuranceadjusters. This state supervision protectsthe buyer of insurance by assuring thesolvency of licensed companies and byexamining their claims practices. Formore information, contact the New YorkState Department of Insurance at 1-800-218-8222; www.ins.state.ny.usYou should have your insurance placedwith a company licensed in New YorkState if you want the full protection ofthe State’s insurance law. To get the best

machine or fax modem and call from atouch-tone telephone. Generally, faxesare sent within five minutes of request.During periods of heavy demand, the system can take more than an hour. Calltoll free 1-800-748-3676 for the fax-on-demand system.You can also request forms by calling 1-800-462-8100 or writing to: NYS TaxDepartment, Forms Control Section, W.A. Harriman Campus, Albany, NY 12227.You can speak to a Taxpayer Services Representative by calling theTax Department’s Business TaxInformation Center at 1 800 972-1233 oryou can write to NYS Tax Department,Taxpayer Assistance Bureau, W. A.Harriman Campus, Albany, NY 12227.Whether you’re starting a new businessor purchasing an existing one,Publication 20, Tax Guide for NewBusinesses, provides basic informationabout New York State’s tax law andregulations. A new business or newownership may require that you registerfor certain taxes or obtain a license. Thispublication outlines the procedures tofollow and forms to file with the TaxDepartment.

STATE AND LOCAL SALES AND USE TAXESNew York State sales tax is collected onthe sale or rental of all goods unless theyare specifically exempted by the law.Sales tax on services, however, iscollected only if the law specifically taxesthat service. Most things sold at retail,from computers and take-out food tohotel rooms and entertainment, arecovered by these laws. For tax purposes,a sale can include an exchange or barterand a rental can include a lease orlicense to use.If you sell or deliver taxable goods or perform taxable services in an areathat has a local sales tax, you will alsohave to collect that tax. If you operateyour business in the metropolitanCommuter Transit District (New York Cityor Rockland, Nassau, Suffolk, Orange,Putnam, Dutchess or Westchestercounties), you will also have to collect anadditional 1/4 percent sales tax.If you must collect sales tax, you shouldregister as a vendor with the New YorkState Department of Taxation andFinance at least 20 days before doingbusiness. After the department approvesyour completed application, it will sendto you a Certificate of Authority. Thiscertificate allows you to charge andcollect the required state and local salestax, and also confirms your registrationas a business vendor in New York State.As a registered vendor, you must keep

detailed records of all sales, rentals andtransactions that are subject to sales anduse taxes.Registering as a vendor may allow youto claim an exemption from paying salestax to your suppliers, particularly if youare buying raw materials to create aproduct to later be sold at retail, or if youare buying something to resell. There is a long list of sales tax exemptions, and itpays to be aware of them, particularly ifyou are involved in manufacturing,mining, agriculture or research anddevelopment.No matter what kind of business youstart, it is imperative that you follow allregulations regarding local sales and usetaxes. You may be subject to seriouspenalties if you fail to register as avendor and collect the appropriate salestaxes. When you receive a request forthe amount of sales tax your businesshas collected during a specific period,you must respond even if your answer is“none.” Failure to respond carries amonetary penalty. Publication 750, AGuide to Sales Tax In New York State,provides detailed information regardingsales tax requirements, obtaining aCertificate of Authority, record keepingand the sales and use tax returns to file.

BULK SALESIf you are purchasing an existingbusiness rather than forming a new one,or purchasing assets from an existingbusiness, you must determine if the sellerhas ever been required to register as aperson required to collect New YorkState sales and use taxes. If so, the saleof the business – or any part of it – iscalled a “bulk sales transaction” and,regardless of the size or cost of the sale,you have certain legal responsibilities.You must register as a vendor by filingform DTF-17, Application for Registrationas a Sales Tax Vendor, at least 20 daysbefore you take possession of or pay forbusiness assets from a person requiredto collect sales and use taxes in a bulksale transaction. You must also beregistered as a vendor at least 20 daysbefore making taxable sales or usingexemption certificates. If you do notregister, you may be subject to asubstantial penalty.You must notify the Tax Department ofyour intended purchase by filing FormAU-196.10, Notice of Sale, Transfer orAssignment in Bulk, at least ten daysbefore paying for or taking possession ofthe business assets, whichever occursfirst. Regulations require that you sendForm AU-196.10 by registered mail orcertified mail. (You may also wish torequest a return receipt, although it is not

required.)The department will issue the purchaserand/or escrow agent a Notice of Claim toPurchaser, Form AU196.2, if the seller hasan existing or pending sales tax liability.Otherwise the department will issue aPurchaser’s and/or Escrow Agent’sRelease – Bulk Sale, provided any salestax due on the taxable assets in the “bulksales transaction” had been paid.The Notice of Claim to Purchaser explainsyour responsibilities relating to thepurchase and advises you to withholdpayment of the purchase price of thebusiness from the seller until thedepartment completes its investigation.You may wish to consult a taxpractitioner about placing the purchaseamount in an escrow fund from whichany outstanding sales and use taxliabilities can be paid to the department.The department may conduct aninvestigation within 90 days to determineif the seller owes any sales and use tax.You will be notified by the department ofthe total amount of any taxes for whichyou may be held responsible under thebulks sales provisions. You must pay, outof the purchase price, the taxes owed bythe seller, but not an amount greater thaneither the purchase price of the fairmarket value of the business assets beingpurchased, whichever is greater.If you created an escrow account, youcan withdraw from the escrow accountthe amount of tax due and pay it to thedepartment. Once you, as the purchaser,or the seller pays the taxes owed by theseller, the department will issue anauthorization to release any balance inthe escrow account to the seller.You may also be liable for a separatesales tax, based on your purchase of theassets of the business. Sales tax isimposed on the transfer of any tangiblepersonal property sold in bulk, exceptproperty intended for resale or tax-exempt property. You, the purchaser,must pay this tax. No sales tax isimposed on real property or onintangible personal property such asaccounts receivable or goodwill.If you buy an existing business that wasrequired to collect sales taxes, you mustmake sure the taxes were paid by filing anotice of sale, transfer or assignment inbulk (see Chapter 1, “Bulk Sales Laws”) oryou could be liable for the formerowner’s unpaid sales taxes.For further information and to obtain therequired forms, contact the TaxpayerAssistance Bureau, New York StateDepartment of Taxation and Finance, W. A. Harriman State Office BuildingCampus, Building 8, Albany, N.Y. 12227,

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telephone 800-225-5829.

Employee RelationsThe relationship between employer andemployees is known as labor-management relations. Every business owner must comply withthe major state and federal laws andregulations that govern labor-management relations. Some aredesigned to provide safe and healthyworking conditions; create a floor-to-ceiling wage scale and a ceiling on hours;prohibit certain types of employment;and restrict industrial home work.Others laws provide for workers’ compensation, unemployment insurance,disability benefits insurance and SocialSecurity. There are also laws andregulations governing industrial relationsand fair employment practices. There are federal and state laws that govern labor-management relations.On the federal level, the Labor-Management Relations Act isadministered by the National LaborRelations Board, whose activities fall intotwo main categories: prevention of unfairlabor practices and the determination ofcollective bargaining representatives.The New York State Labor Relations Actguarantees employees of industriesengaged in intrastate commerce theright to join unions and engage incollective bargaining. This is the sameright that employees of industriesengaged in interstate commerce areguaranteed under federal law. It isadministered by the New York StateLabor Relations Board.The act also provides protection foremployees on the job. It provides a list oflabor practices that are deemed unfair,including interfering with the formationor administration of unions; refusing tobargain collectively or discuss grievanceswith employee representatives; anddischarging or otherwise discriminatingagainst an employee for filing acomplaint with, or giving testimonybefore, the State Labor Relations Board.For more information about andemployer-employee rights and collectivebargaining, contact the New York StateEmployment Relations Board, 5 EmpireState Plaza, Suite 2580, Albany, N.Y.12223, telephone 518-474-7724.

HIRING PRACTICESThe New York State Human Rights Lawis the state’s primary statute addressingemployee rights. Among other things, itforbids discrimination in any business inNew York State that employs four or

more people. Discrimination includesemployment decisions based on gender,race, national origin, age, religion, physicalcondition, marital status or criminalconviction or arrest.In addition to state law, there are severalpieces of Federal legislation that affectbusiness hiring practices, which furtherprotect employees from discriminatoryactions. The majority of these reinforcethose issues covered under New YorkState law, but also extend to includeissues related to veterans, pregnancy,aging and retirement benefits, andequality in pay.Another concern addressed by federal law is illegal immigration. TheImmigration Reform and Control Act hasan employment verification systemaimed at reducing the illegal entry ofaliens into the United States. Under thissystem, all employees of both public andprivate businesses must fill out a formstating that they are eligible to work inthe United States. (See Chapter 2.)The chart on page 50 serves as a general guideline for various State andFederal posting requirements.

SAFETY AND HEALTHAll employers are obligated to providetheir employees with a safe place towork. The worksite must be free fromrecognized hazards that are likely tocause death or serious physical harmand must follow specific health andsafety standards adopted by the U.S.Department of Labor.The federal Occupational Safety andHealth Act (OSHA) affects all businesses,even those with only one employee.OSHA representatives have the authorityto inspect the premises of a business,interview employees privately and reviewrequired records at any time.Under OSHA, if you employ 10 or morepeople, you must keep records ofoccupational injuries and illnesses. Inaddition, all employers must display aposter describing their responsibilities totheir employees. Forms and posters areavailable from your OSHA regional office.For the regional office nearest you,contact the federal Occupational Safetyand Health Administration, 201 Varick St.,Room 670, New York, N.Y. 10014, telephone 212-337-2378.If you would like to know if youroperation conforms to OSHA standards,the New York State Department of Laboroperates a free on-site consultationprogram that makes expert staffavailable to visit employers. Theseexperts can also advise you on how tohandle any hazards you might find at

your place of business. Consultants’findings are not reported to OSHA.For more information, contact the NewYork State Department of Labor, Divisionof Safety and Health, W. A. HarrimanState Office Building Campus, Building12, Room 168, Albany, N.Y. 12240,telephone 518-457-2810.

WAGES AND HOURSFactory and other manual laborers mustbe paid their wages weekly, not morethan seven days after the end of theweek in which the wages were earned.Office and most administrativeemployees must be paid according tothe agreed terms of employment, but atleast semi-monthly.Under the New York State MinimumWage Law, you must pay youremployees at least the statutoryminimum wage. The only deductions youcan make from wages are those requiredby law and those authorized in writingby the employee. In addition, it is illegalto discriminate in the rate of pay basedon a person’s gender.As an employer, you are required to keepa record of the hours worked and wagespaid to all of your employees. You mustfurnish a sworn statement of theserecords to the New York StateDepartment of Labor upon request. Youmust also post or distribute in writing toyour employees your policies on sickleave, vacation, personal leave, holidaysand working hours.On a public work project, such as thebuilding of roads or schools, you mustpay a worker, laborer or mechanic thewage and fringe benefits for thecorresponding occupation as set byunion contracts in the locality where thework is performed. These are known asprevailing wages.Under State Labor Law, except forcertain exempt professions, employeesmust be given at least 24 consecutivehours off in each calendar week. Generally, minors under 18 must haveemployment certificates (“workingpapers”) or permits issued by localschool authorities before they can work.The employer must keep these paperson file. Minors under 18 may not beemployed in certain hazardousoccupations specified by the New YorkState Labor Law or during school hours.Employer must keep these on file.For more information on employeehours, contact the Division of LaborStandards, New York State Departmentof Labor, Building 12, W. A. HarrimanState Office Building Campus, Albany,N.Y. 12240, telephone 518-457-2730.

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For information on prevailing wages,contact the Bureau of Public Works,Building 12, New York State Departmentof Labor, W. A. Harriman State OfficeBuilding Campus, Albany, N.Y. 12240,telephone 518-457-5589.

WITHHOLDING TAXES

FederalIf you employ one or more people, youmust withhold income taxes from theirwages. You can get the necessary formsand instructions from your local districtdirector of the Internal Revenue Service(IRS). The amount of taxes you mustwithhold is based on the informationcontained in each individual’swithholding allowance certificate, FormW-4. You must have all employees fill outthis form when they begin employmentwith your company.You will be required to file quarterlyreturns with the IRS district director. Youalso may be required to make monthlydeposits of funds collected from youremployees during the previous month.Annually, you must file a reconciliation ofyour quarterly returns along with copies of the withholding statements that yougive to your employees. You may decideto have an accountant or businessmanager handle all or some of thesedetails for you.Penalties and excess payments mayaccrue from failure to make payments orto file returns properly. Circular E,“Employer’s Tax Guide,” provides details onreporting federal income tax withholdings,Social Security taxes and federalunemployment tax. You can get a copyfrom the IRS, telephone 800-829-3676.

StateEvery employer maintaining an office ortransacting business in New York Statemust also withhold New York Statepersonal income tax from employeewages. Before hiring employees, youshould get a copy of the “Employer’sGuide to Unemployment Insurance,Wage Reporting and Wage WithholdingTax,” Publication NYS-50, from the NewYork State Department of Taxation andFinance (see Chapter 7, “Taxes” for variousways to contact the Tax Department).

Employee BenefitsWORKERS’ COMPENSATIONAccording to New York State Workers’Compensation Law, qualifyingbusinesses must obtain workers’compensation insurance before puttingemployees to work. Personal injuriesincurred in the course of employment

and deaths resulting from such injuriesare compensable under this law.Rates for workers’ compensationinsurance vary according to the nature ofthe employment and hazards involved.You can arrange to have insurancecarried with any private companyauthorized to transact the business ofworkers’ compensation insurance in theNew York State, or you can make anarrangement with the State InsuranceFund, a not-for-profit state agency.The State Insurance Fund writes workers’compensation insurance for normal risksat a discount from standard rates,depending on the size of the premium.The main office of the State InsuranceFund is at 199 Church St., New York, N.Y.10007, telephone 212-312-9000. You alsohave the option of applying to thechairperson of the Workers’ CompensationBoard to become a self-insurer.You must post and maintain, in aconspicuous place, a printed noticestating that you have complied with allthe rules and regulations governingworkers’ compensation. You must alsostate that you have secured the paymentof compensation to your employees andtheir dependents as provided under theWorkers’ Compensation Law. You can getthese printed notices from your insurancecarrier. For further information, contactthe Advocate for Business, Workers’Compensation Board, 20 Park Street,Albany, N.Y. 12207, telephone 1-800-628-3331.If your business is not covered under theWorkers’ Compensation Law, you shouldcarry your own accident and healthinsurance with a casualty insurancecompany.

DISABILITY BENEFITSThe Disability Benefits Law is a specialsection of the Workers’ CompensationLaw that protects workers from non-occupational injury or sickness. If youemploy one or more employees (incovered employment) for 30 days in anycalendar year, then you are subject tothis law and must get protection,generally in the form of insurance, fromthe State Insurance Fund or a companyauthorized to write accident and healthinsurance in New York State.You also have the option of operating asa self-insurer, but you must furnish theWorkers’ Compensation Board with proofof your ability to pay benefits, and theboard chairman may require a deposit ofsecurities, cash or surety bond.

UNEMPLOYMENT INSURANCEWhen you begin business in New YorkState and hire one or more employees,

you must notify the New York StateDepartment of Labor UnemploymentInsurance Division to get a determinationof your tax status. The notification form,“Report to Determine Liability,” isavailable from the New York StateDepartment of Labor, UnemploymentInsurance Division, W. A. Harriman StateOffice Building Campus, Albany, N.Y.12240, telephone 518-457-4179.If the Department of Labor decides youare subject to the UnemploymentInsurance Law, you will be given aregistration number, the necessary taxreporting forms and an “Employer’sGuide to Unemployment Insurance,”Form IA-318.1, which explains your rightsand responsibilities under the law.Under the State UnemploymentInsurance Law, employers in New YorkState are required to pay contributionsto the Unemployment Insurance Fund.Contributions are based on the first$8,500 paid to each employee duringany calendar year. In general, you aresubject to the law on the first day of thecalendar quarter in which you payremuneration totaling $300 or more, oras of the day you purchase or otherwiseacquire the business of a previouslycovered employer.The State Unemployment Insurance Lawprovides for an experience rating systemfor contributing employers. You earn acontribution rate in the lower portion ofthe rating scale if your account shows afavorable employment experience, which,in this case, is reflected by your use ofthe insurance fund, specifically, thenumber of layoffs you have per calendaryear.Safeguards have been provided to keepthe Unemployment Insurance Fund in asound and solvent condition. When aformer employee files for unemploymentinsurance benefits, the Department ofLabor will provide all base periodemployers with an initial notice ofmonetary entitlement. This notice willinform the employers of their potentialmaximum liability based upon the claimfor benefits as well as the amount ofwages attributable to each employer.The notice will allow employers toprovide corrected wage information andto notify the Department of anyconditions they believe may render theclaimant to be ineligible.

FEDERAL UNEMPLOYMENT TAXYou are subject to federal unemploymenttax if, during the current or prior year, youpaid wages of $1,500 or more during anycalendar quarter in the current calendaryear or any calendar quarter in the

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State and Federal Posting Requirements — A General GuidelineVarious state and federal laws require that posters be displayed in a prominent location for employees’ information. The

following chart includes these requirements for posting notices. Although this chart does not include all required posters

for all industries, it should serve as a general guideline to which New York State businesses may refer.

Subject Statute Posting Requirements Order Form

Equal Employment The Civil Rights Act One poster, “Equal Employment Opportunity is the EEOCOpportunity of 1964, Title VII Law” is issued jointly by the EEOC and the Office of Office of Communications

Federal Contract Compliance Programs. This poster and Legislative Affairssatisfies requirements for handicapped veterans, 1801 L Street, NWage, and non-discrimination in employment under Washington, D.C. 20507Title VII and E.O. 11246. (202) 663-4264

Family and Medical The Family and “Your Rights under the Family and Medical Leave U.S. Department of LaborLeave Act Medical Leave Act Act of 1993.” Satisfies the act’s posting requirements Wage and Hour Office

of 1993 to notify employees of their rights under the law. www.dol.gov

Human Rights NYS Human Rights “State of New York Division of Human Rights” Local or regional Wage Law outlines prohibited discriminatory practices in and Hour Office

employment. www.labor.state.ny.us

Minimum Wage Federal Fair Labor NYS Minimum Wage Poster. Federal poster also Local or regional WageStandards Act and required, although it includes training wage that is and Hour OfficeNYS Dept. of Labor prohibited in New York State. www.labor.state.ny.usMinimum Wage Orders

Polygraphs Polygraph Protection “Employee Polygraph Protection Act,” Wage-Hour U.S. Dept. of Labor WageAct of 1988 Publication 1462. and Hour Office

www.dol.gov

Safety Occupational Safety “Job Safety and Health Protection” OSHA 2203 Local or regional OSHAand Health Act –1989 (revised). Employers engaged in interstate office

commerce; effective 1/1/83, the following industriesRequired of all are exempt: retail trade, finance, insurance andemployers with 11real estate services.or more employeesAnnual summary of the previous year’s occupationalinjuries and illnesses is to be posted by February 1.Use OSHA form 200.

Smoking New York State Smoking policy must be posted. Smoking and No The NYS Dept. of HealthClean Indoor Air Act Smoking signs or the international No Smoking does not have a supply of

symbol must be permanently posted in every place No Smoking signs. Forwhere smoking is prohibited or restricted under more information on thethe act. Clean Indoor Air Act call

518-458-6706.

Unemployment NYS Unemployment Form 1A 133, “Notice to Employees.” Local unemploymentCompensation Compensation Law office;www.labor.state.ny.us

Workers’ NYS Workers’ Notice of Compliance, Workers’ Compensation Law. Workers’ compensationCompensation Compensation Law carrier

Disability Benefits NYS Workers’ Notice of Compliance, Workers’ Compensation Law. Disability carrierCompensation Law

Certain posters are not included in the above chart because they are not specifically required in New York State. For example, a

poster outlining child labor laws is not required (although if a company employs minors, it is required to post those employees’

scheduled weekly hours of work). Similarly, posters outlining the New York State Right to Know Law are not required for private

employers, as they instead are subject to the federal OSHA standards.

Source: The Business Council of New York State

preceding calendar year; or employed atleast one person for some part of oneday for any 20 weeks during the currentor preceding calendar year.The unemployment insurance program isoperated jointly by the state and federalgovernments, and the federal tax duemay be reduced, within limits, by aportion of the unemployment taxes paidto the state. For more information,contact the Forms Division of the IRS andask for Form 940 and its accompanyinginstruction book, “Employers AnnualFederal Unemployment Tax Return,” at 800-TAX-FORM or www.irs.gov

SOCIAL SECURITY TAXBoth employers and employees bear thecost of federal Social Security. As anemployer, you must file an application foran employer’s identification number onForm SS-4, which you can get from anyIRS office. Circular E, “Employer’s TaxGuide,” gives you a comprehensive summary of Social Security taxes.Self-employed individuals and partnersof firms who net $400 or more a yearmust also have a Social Security cardand pay Social Security tax. If you fallinto this category, the tax is included onyour federal income tax return.For further information, contact your nearest Social Security office, whichis listed in the blue pages of your localtelephone directory, contact the federaloffice at 800-772-1213 or www.ssa.gov

Energy Choices New York, along with several otherstates, has opened its electric market tocompetition. This change means thatmany companies, small and large, canchoose who provides their power.Competition lowers costs and leads toexpanded products and serviceinnovations, such as energy-savingimprovements, itemized charges,equipment installation and financing. The combined services offered by yourutility company are split into two parts—production and delivery—with theproduction portion open to competition.Companies will no longer have to buytheir electricity or gas from the localutility. Instead a company can shopamong the energy service companies(ESCOs) that compete for your business.The Public Service Commission (PSC)requires competitive ESCOs to becertified businesses registered with theNew York Department of State andprovide a disclosure statement tocustomers to include a complaintresolution process. The PSC’s website at www.dps.state.ny.us

provides a list of ESCOs in your utilityservice territory.

PSC’S OFFICE OF BUSINESSADVOCACYHelp is only a toll-free phone call away—1-877-661-9223— for companiesnavigating the waters of energycompetition, through the PSC’s Office ofConsumer Education and Advocacy’sOffice of Business Advocacy.This Office has assisted many companiesfrom Manhattan to Malone during thetransition to the new, unrestricted energyenvironment. This assistance hasincluded: • business incentive rates;• the Power for Jobs program—an

initiative through which low-cost electricity is allocated to companies atrisk of closing or relocating to otherstates, or considering expansion;

• assisting economic developmentagencies in retaining businesses atrisk and encouraging businesses toexpand operations or locate newfacilities in New York;

• intervening and providing disputeresolution assistance on behalf ofbusiness customers who may beexperiencing difficulties with utilities,including those involving billing,collections, line extension andcustomer service; and

• making presentations about electriccompetition to business groups andchambers of commerce.

HOW TO CHOOSE AN ENERGY SERVICE COMPANYThe PSC’s Office of Business Advocacyoffers several tips to smaller companieson how to shop for electricity for the firsttime.Before calling an energy servicecompany or ESCO, companies shouldtake a moment to collect billinginformation from the past year to get abetter idea of their kilowatt-hour usage.Then companies should get the phonenumbers of as many ESCOs as possibleto determine what types of benefits areavailable—see the PSC’s comprehensivelist on it’s website (www.dps.state.ny.us).Asking the right questions is also key.Start by finding out what kilowatt-hourrate an ESCO offers. Then make sureyour company discusses with the ESCO:whether rates are fixed, or vary duringthe year; what contract options areavailable, and; whether there is an accessfee when service begins, or a penalty todiscontinue service.Smaller companies can also reap costsavings by banding together or

aggregating with other similarbusinesses, and then shopping forelectricity as one collective unit. ManyChambers of Commerce in New YorkState have recognized the benefits ofaggregation and are currentlyresearching competitive energy pricesfor their members.

MORE INFORMATIONThe State Public Service Commission’sBusiness Advocates travel throughoutNew York State meeting with individualbusiness customers, Chambers ofCommerce, and with other businessgroups to provide direct assistance andinformation regarding the PSC’s energyrestructuring efforts. You can reach the Office of BusinessAdvocacy by calling 518-473-8175 ortoll free 1-877-661-9223. The mailingaddress is: Office of Business Advocacy,NYS Public Service Commission, EmpireState Plaza, Albany, N.Y. 12223-1350 orwww.dps.state.ny.us

A Final WordBy deciding to open your own business,you become part of a great Americantradition. You also join thousands ofentrepreneurs before you who havemade the same journey in search ofpersonal and financial satisfaction.As you move along this road, you may want to refer back to many of the sections in this book, as well as look atthe following appendices and readinglist. With solid research into businessmatters, sound information, dedicationand hard work, you will find the journey aworthwhile one.

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GlossaryAccount: A record of transactionsbetween parties, usually involving anunfulfilled obligation.

Accounts payable: A list of currentbusiness debts or liabilities that must bepaid in the future (usually within one year).

Accounts receivable: A list of theamounts a firm is owed by others formerchandise or services sold on credit.Even though a business does not have themoney in hand, the money owed isconsidered an asset, part of the value ofthe business. Once collected, it becomesworking capital.

Asset: Anything of worth that is owned.Assets may include cash on hand or in thebank, accounts receivable, securities,property or buildings, equipment, fixtures,merchandise inventory and supplies.

Balance sheet: A report that shows whata business owns and owes. Typically,business assets and their cost are listed onone side and liabilities and owners’ equity(investment in the business) on the other.Liabilities include everything the businessowes. If the balance sheet is figuredcorrectly, total assets will equal totalliabilities plus owners’ equity.

Books: The records of all businesstransactions. They may be in the form ofledgers, journals and other books ofaccount or they may be records stored ina computer.

Budget: A plan of financial operationsembodying an estimate of projectedexpenditures for a given period and theproposed means of financing them.

Capital: Money available to invest; the totalof accumulated assets available forproduction; the total of property andmoney resources the business owner canmake available for business.

Cash: Money in hand or readily available,including currency, change, money thatcan be drawn on demand and suchnegotiable securities as checks.

Cash discount: A deduction or allowancethat is given if payment is completedwithin a stated period of time.

Cash flow: An accounting presentation ofa company’s funds. It shows how much ofthe cash generated by a business remainsafter both expenses and principalrepayment on financing are paid.

Collateral: Property or other assetspledged by a borrower to secure a loan. Inthe event of default, the lender has theright to use proceeds from the sale of thecollateral to obtain repayment of the loan.

Contingency: A possible future event or condition arising from currently known orunknown causes, the outcome of whichcannot be determined at the present time.

Contract: A legally binding agreementregarding mutual responsibilities betweentwo or more parties. Generally in business,a contract exists when there has been ameeting of the minds, and it sometimesneed not be in writing. Many sales forms ororder blanks are binding contracts andshould not be signed unless the terms ofthe agreement are well understood.

Co-op advertising: Advertisements in which the message and the cost areshared with others, often between asupplier and one or more retailers.

Corporation: A legal entity, created by astate charter, that can do business thesame as individuals in a sole proprietorshipor partnership. The corporation acts on itsown through its officers and is empoweredto make contracts and carry out businessactivities like an individual business owner.Unlike other types of ownership, the sharesof a corporation may be owned by anumber of persons. (Compare with limitedliability company, partnership, and soleproprietorship. See also S. corporation.)

Credit: Permission to pay in the future forgoods or services received now. Credit isused to increase trade and sales.

Current assets: All those assets that areavailable without restriction to meetcurrent financial responsibilities, such ascash, government securities, marketablesecurities, notes receivable (other thanfrom officers or employees), accountsreceivable, inventories, prepaid expenses,and any other item that can be convertedto cash in the normal course of businesswithin one year.

Current liabilities: Liabilities of a companythat will mature within one year or withinthe normal operating cycle of the business,whichever is longer, such as accountspayable, notes payable, accrued expensessuch as wages, salaries, withholding taxand FICA, taxes payable and currentportion of long-term debt.

Debt: That which is owed as an obligationresulting from the borrowing of money orfrom the purchase of goods and services.

Depreciation: Expiration in the service lifeof fixed assets; a decrease in value throughage, wear or deterioration charged as anexpense for tax and accounting purposes.

Direct mail: Sales letters, postcards,leaflets, folders, booklets and cataloguesdelivered through the mail to potentialcustomers to attract business to a locationor encourage a mail-order response.

Disbursement: Process of preparing,recording and sending cash, check orvoucher of stated amount to a specifiedperson or organization.

Dissolution: The voluntary or involuntarytermination of a partnership, corporationor contract.

Double entry: A system of bookkeepingthat requires an entry for a correspondingamount to the credit (right) side of anaccount for every entry made to the debit(left) side of an account. It involvesmaintaining a balance of assets on onehand and liabilities on the other.

Equity capital: Venture money; money putinto a business.

Financial statements: Documents thatshow a financial situation. The two majorstatements needed to document theinformation necessary to run a businessand get financing are the revenue andexpense statement and balance sheet.

Fiscal year: A period of 12 monthsdesignated as a year for accountingpurposes. It does not have to correspondto the calendar year.

Fixed assets: Land, buildings, machinery,furniture and other items that have anexpected useful business life measured inyears and are not converted into cashduring a normal fiscal period. Depreciationis applied to those fixed assets that(unlike land) will wear out.

Fixed costs: Expenses or costs that donot vary from one period to the next inproportion to the rate of activities of thebusiness, such as depreciation, interest,insurance or rent.

Fixed (long-term) liabilities: Liabilities that will not mature during the next accounting period.

Franchise: An exclusive right or privilege to deal in a certain line or brand of goods orservices in a specified geographical area.

Gross: Overall total before deductions.

Income: Accounting term used torepresent the excess of revenues earnedover expenses incurred in conductingbusiness operations.

Income statement: See revenue andexpense statement.

Income taxes: Taxes owed to federal, stateor local government based on the profitsmade by a business. Income taxes representa cost to the business and are shown onthe revenue and expense statement.

Intangible assets: Assets of a businessthat may be of value but that can not bemeasured or objectively evaluated, such asgoodwill and reputation.

Interest: The cost of borrowing money.

Invoice: A bill sent to a customer is calleda customer invoice. A bill received from asupplier is called a vendor invoice orpurchase invoice. Some governmentpurchasing entities require that all billshave the word “invoice” on the top toclearly indicate that it is a bill to be paid.

Revenue and expense statement: A list of the total amount of sales (revenue) andtotal costs (expense); the differencebetween revenues and expenses; anincome statement.

Revolving credit: A contractualagreement allowing a customer to borrowfunds when needed up to a specifiedmaximum for a limited period of time.

S corporation: A special corporation thatis taxed similarly to a partnership. To beeligible for S corporation status, a businessmust meet certain criteria. (Compare withcorporation, limited liability company,partnership and sole proprietorship.)

Secured loan: A loan that is made safe or backed by marketable securities orother items of value that can be sold.

Securities: Documents that identify legalownership of a physical commodity orlegal claims to another’s wealth; oftenrefers to stocks or bonds that are placedby a debtor with a creditor along withauthority for the creditor to sell them if thedebt is not paid.

Service business: A business that sells services, such as janitorial, medical, legal,repair or other work.

Small business: Defined by New York State law as a business with fewer than100 employees, independently owned andoperated and not dominant in its field. Forloan and tax purposes, federal law hasspecific criteria for different businesssectors.

Sole proprietorship: A form of legal organization for a business in which there is one owner. If the business owes morethan the amount of cash and other assetsit has, the owner may be required to sellpersonal assets, such as a home or car, topay the obligations. (Compare withcorporation, limited liability company,limited partnership and S corporation.)

Stock: An ownership share in acorporation; another name for a share.Stock also refers to accumulatedmerchandise. The things a retailer hasavailable for sale is referred to as stock andwhen those things are put out for display,the shelves are stocked.

Tangible assets: Things that can be seen,evaluated and, if necessary, converted intocash. (Compare with intangible assets.)

Target market: An identifiable group of current and prospective customers.

Wholesaler: One who sells goods involume to retailers, who then sell themerchandise to customers; a distributor; ajobber.

Working capital: Capital immediatelyavailable for the continued operation of abusiness.

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Inventory: Raw materials, work in processand finished goods available for sale;supplies used to carry on a business andnot purchased for resale. Bothmanufactures and retailers have inventory.

Lease: A long-term rental agreement.

Ledger: A book containing a group ofaccounts that record the financialtransactions of a business. It is a summaryof transactions in which debits and creditsare posted from books (journals) oforiginal entry.

Liability: Debt or other obligation owed bythe business to other people or to anotherbusiness that must be liquidated, renewedor refunded at some future date.

Liability insurance: Risk protection to coverpossible loss due to personal injury and/ordamage to property from lawsuits, if abusiness or its agents are found at fault.

Limited liability company: A businessthat retains the management flexibility ofa partnership while offering some of theadvantages of a corporate structure.(Compare corporation, partnership, Scorporation and sole proprietorship.)

Limited partnership: A legal partnershipwhere some owners assume responsibilityonly up to the amount invested.

Liquidate: To settle a debt or to convert to cash.

Liquidity: The ability of a firm to meet itscurrent debts with cash payments; ameasure of the adequacy of current assetsto meet current obligations as theybecome due.

Loan: Money lent at interest.

Long-term liabilities: Debt obligations with a maturity of more than one yearafter issuance, such as bonds, mortgages,trust deeds, intermediate and long-termbank loans, and equipment loans.

Mail order: A business that receives itsorders primarily by mail or telephone andgenerally offers its goods and services forsale from a catalogue or other printedmaterial, such as an advertisement orinsert. Also, a method of marketing for aretailer or manufacturer.

Market: Customers; a group or category ofpeople who are, or could become, buyers.

Marketing: The process of acquaintingpotential customers with the range ofgoods or services available for sale; amanagement approach to the provision ofgoods and services that combines profit,customer satisfaction and planned growth.

Market price: The average price for a similar item or service that the consumer has paid or is willing to pay.

Media: Radio, television and printedpublications such as newspapers andmagazines.

Middleman: A generic term that includesthose men and women in the distributionsystem whose services stop short ofdealing directly with the public, such asbrokers, commissions sales agents,wholesalers, distributors and jobbers.

Net: What is left after deducting allcharges. (Compare with gross.)

Net worth: The owner’s equity, retained earnings and other equity.

Net income: The amount left aftersubtracting all the costs of running thebusiness from the sales made by thebusiness for an accounting period.

Notes payable: An unconditional writtenpromise signed by the maker to pay acertain sum in money on demand at afixed or determinable time either to thebearer or to the order of a designatedperson.

Overhead: Those elements of costnecessary in the production of goods, theperformance of services or the operationof a retail business, such as rent, heat,electricity, telephone and supplies.

Owner’s equity: The amount left aftersubtracting the liabilities of the businessfrom the assets of the business.

Partnership: A legal form of business organization in which two or more ownersorganize the business, put in the owner’sequity and share in the profits or losses ofthe company. Partners combine theirknowledge, capital and/or labor to reach acommon objective. (Compare withcorporation, limited partnership, limitedliability company, S corporation and soleproprietorship.)

Petty cash: A cash fund used to pay forminor items that are relatively inexpensiveand more conveniently paid for by cashrather than by check or credit card.

Posting: To enter in an account. Literally,post means to give a position tosomething, so when figures are posted in aledger, they are assigned their rightposition in the firm’s account books.

Pricing: Setting a selling price.

Profit margin: The difference between selling price and costs.

Promotion: Marketing activities that stimulate the demand for goods orservices by advertising, publicity andevents that attract attention and createconsumer interest.

Reserve: That which is held back or storedfor future use in case of emergency. Thesuccess or failure of new businesses oftendepends on the availability of cashreserves to weather financial crises.

Retail: Selling directly to the ultimate consumer; selling in small amounts to thegeneral public.

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Appendix ASupplementaryReadingThis section contains a supplementary list ofpublications that will help you plan, organizeand run your small business. The titles are merely representative of themany books available today. Your local librarywill have a selection of books on business-related topics, and you can get othersthrough inter-library loan or at bookstores.The specialists at your local Small BusinessDevelopment Center can recommendadditional texts and resources.

ACCOUNTING AND BOOKKEEPING

Bellavance, Diane. Bookkeeping for a SmallBusiness. Boston, MA: D.B.A. Books, 1998.

Fallek, Max. How to Set Up Your Own SmallBusiness. Minneapolis, MN: American Instituteof Small Business, 1999.

Pinson, Linda & Jerry Jinnett, Keeping theBooks: Basic Recordkeeping and Accountingfor the Small Business Plus Up-to-Date TaxInformation. Chicago: Dearborn FinancialPublications, 2001.

COMPUTERS IN BUSINESS

Albrecht, Michael C., Computerizing YourBusiness. Englewood Cliffs, NJ: Prentice Hall,1997.

Moskowitz, Robert K., The Small BusinessComputer Book: A Guide in Plain English.Dover, NH: Upstart Publishing, 1993.

DIRECTORIES AND BOOK LISTS

Ayers Directory of Newspapers andPeriodicals. Detroit, MI: Gale Research Co.

Ruffner, Frederick G. & Margaret Fisk,Encyclopedia of Associations. Detroit, MI:Gale Research Co.

Wasserman, Paul, Encyclopedia of BusinessInformation Sources. Detroit, MI: GaleResearch Co.

American Business Disk. Omaha, NE:American Business Information.

Standard Periodical Directory. New York, NY:Oxbridge Communications Inc.

Directories in Print. Detroit, MI: Gale ResearchCo.

New York Manufacturer’s Directory.Twinsburg, OH: Harris Publishing.

The New York State Directory. Albany, NY:Empire State Report, Inc.

Small Business Sourcebook. Detroit, MI: GaleResearch Co.

Thomas Register of American Manufacturers.New York, NY: Thomas Publishing Company.

FINANCIAL PLANNING

DeThomas, Art & Scott Crawford, FinancialManagement Techniques: For SmallBusinesses. Grants Pass, OR: Oasis Press/PSIResearch, 1991.

Gill, James O., Financial Basics for SmallBusiness Success, Menlo Park, CA: CrispPublications, 1994.

Tabet, Joseph & Jeffrey Slater, FinancialEssentials For Business Success. Dover, NH:Upstart Publishing, 1994.

FRANCHISES

Barkoff, Rupert, M. & Andrew C. Seldan,Fundamentals of Franchising. Chicago, IL:The American Bar Association, 1997.

Franchise Opportunities Guide. WashingtonDC: International Franchise Association.

Franchise Opportunities Handbook.Washington DC: U.S. Department ofCommerce, Bureau of Industrial Economics.

LEGAL ADVICE

Small Business Handbook: Laws andRegulations. Washington DC: U. S.Department of Labor, Office of the AssistantSecretary for Policy, 1993.

Steingold, Fred, The Legal Guide for Startingand Running a Small Business. Berkeley, CA:Nolo Press, 1998.

MANAGEMENT

Scarborough, Norman M. & ThomasZimmerer, Effective Small BusinessManagement. Upper Saddle River, NJ:Prentice Hall, 2000.

MARKETING PLANNING

Bangs, David H., The Market Planning Guide.Chicago, IL: Upstart Publishing Company,1998.

Gerson, Richard H., Marketing Strategies forSmall Business. Menlo Park, CA: CrispPublications, 1994.

Hiam, Alexander, Marketing for Dummies.Foster City, CA: IDG Books, 1997.

PATENTS, TRADEMARKS,COPYRIGHTS

Patent, Trademark and Copyright Journal.Washington, DC: Patent, Trademark andCopyright Foundation of the GeorgeWashington University.

Foster, Frank & Robert Shook, Patents,Copyrights, and Trademarks. New York, NY:Wiley & Sons, Inc., 1993.

Carr, Fred K., Patents Handbook. Jefferson,NC: McFarland, 1995.

PERSONNEL PLANNING

Grensing-Pophal, Lin, Small Business Guideto Employee Selection. North Vancouver, BC:Self-Counsel Press, 1991.

Bacarro, Joseph P., Getting Started in HumanResource Management. Alexandria, VA:Society for Human Resource Management,1996.

SELLING TO GOVERNMENTAGENCIES

Crownnover, Clinton L. & Mark Henricks,Selling to Uncle Sam: How to Win ChoiceGovernment Contracts for your Business.New York, NY: McGraw Hill Publishing, 1993.

Frey, Robert S., Successful ProposalStrategies for Small Businesses: WinningGovernment, Private Sector and InternationalContracts. Boston, MA: Artech House, 1999.

STARTING A BUSINESS

Bangs, David H., The Business PlanningGuide. Chicago, IL: Upstart PublishingCompany, 1998.

Bangs, David H., The Start Up Guide: A OneYear Plan for Entrepreneurs. Dover, NH:Upstart Publishing Company, 1994.

Appendix BTrade Associations ForSelected BusinessesFollowing is a list of trade associations forselected businesses. These associations canbe a wellspring of advice, information andother pertinent data. When contacting anassociation, be sure to inquire whether thereare free materials available.The Small Business Sourcebook, published byGale Research Inc., provides a more extensivelisting of reference materials on specific busi-nesses, including trade magazines. Your localSmall Business Development Center can alsohelp you find out more about specific busi-nesses, or check the National Trade andProfessional Associations of the United States,an annual publication of Columbia Books, Inc.

ACCOUNTING/TAX PREPARATIONSERVICE

American Institute of Certified Public Accountants1211 Avenue of the AmericasNew York, NY 10036-8775Telephone: 212-596-6200 www.aicpa.org

Association of Chartered Accountants in the United States347 5th Ave, Ste 1406New York, NY 10016Telephone: 212-481-7950www.acaus.org

National Conference of CPA Practitioners300 Marcus AveLake Success, NY 11042Telephone: 516-488-5400 www.nccpap.org

45

ADVERTISING SERVICEAdvertising Research Foundation641 Lexington AveNew York, NY 10022Telephone: 212-751-5656 www.arfsite.org

American Association of Advertising Agencies405 Lexington Ave, 18th FlrNew York, NY 10174-1801Telephone: 212-682-2500www.aaaa.org

Transworld Advertising Agency Network7920 Summer Lake CrtFort Meyers, FL 33907Telephone: 941-433-0669www.taan.org

ANTIQUE SHOPArt and Antique Dealers Leagueof Amercia1040 Madison AveNew York, NY 10021-0111Telephone: 212-879-7558 www.artantiquedealersleague.com

APPLIANCE STOREAppliance Parts Distributors Association6761 E. Ten Mile RdCenter Line, MI 48015Telephone: 810-754-1818www.servallco.com

National Appliance Service AssociationPO Box 2514Kokomo, IN 46904Telephone: 765-453-1820 www.nasa1.org

AUTO SUPPLY STOREAutomotive Aftermarket IndustryAssociation4600 East-West Hwy, 3rd FlrBethesda, MD 20814-3415Telephone: 301-654-6664www.aftermarket.org

Gasoline and Automotive Service DealersAssociation9520 Seaview AveBrooklyn, NY 11236-5432Telephone: 718-241-1111

BAKERY/DOUGHNUT SHOPAmerican Bakers Association1350 I St, NWSuite 1290Washington, DC 20005-3005Telephone: 202-789-0300www.americanbakers.org

Independent Bakers Association1223 Potomac St, NWWashington, DC 20007-3212Telephone: 202-333-8190www.mindspring.com/~independentbaker/

CARPENTRY SERVICEArchitectural Woodwork Institute1952 Isaac Newton SqReston, VA 20190Telephone: 703-733-0600www.awinet.org

CATERINGMobile Industrial Caterer’s Association International1240 N Jefferson St, Ste GAnaheim, CA 92807Telephone: 714-632-6800www.mobilecaterers.com

CHILD CARE CENTERNational Association of Child CareResource and Referral Agencies1319 F St, NW, Ste 500Washington, DC 20004Telephone: 202-393-5501www.naccrra.net

National Child Care Association1016 Rosser StConyers, GA 30012Telephone: 800-543-7161www.nccanet.org

CLOTHING STORENational Retail Federation325 7th St, NW, Ste 1100Washington, DC 20004Telephone: 202-783-7971www.nrf.com

COMPUTER PROGRAMMING/DATA PROCESSING SERVICEComputer and CommunicationsIndustry Association666 11th St, NW, Ste 600Washington, DC 20001-4542Telephone: 202-783-0070www.ccianet.org

Information Technology Association of America1401 Wilson Blvd, Ste 1100Arlington, VA 22209-3106Telephone: 703-522-5055

CONSUMER ELECTRONICS STOREElectronic Industries Association2500 Wilson BlvdArlington, VA 22201Telephone: 703-907-7500www.eia.org

National Electronic Service DealersAssociation3608 Pershing AveFort Worth, TX 76107-4527Telephone: 817-921-9061

CRAFT/HOBBY SHOPAmerican Craft Council72 Spring StNew York, NY 10012-4019Telephone: 212-274-0630www.craftcouncil.org

BARBER SHOPHair International124-B E Main StPO Box 273Palmyra, PA 17078-0273Telephone: 717-838-0795

BEAUTY SUPPLY CENTERAmerican Health and Beauty AidsInstitute401 N Michigan Ave, Ste 2200Chicago, IL 60611-4267Telephone: 312-644-6610www.proudlady.org

Beauty and Barber Supply InstituteWDG & Company1660 West McNab RdFort Lauderdale, FL 33309Telephone: 800-468-2274

BED AND BREAKFASTAmerican Bed & Breakfast AssociationPO Box 1387Midlothian, VA 23113-8387Telephone: 804-379-2222www.abba.com

National Bed and Breakfast AssociationPO Box 332Norwalk, CT 06852Telephone: 203-847-6196www.nbba.com

BICYCLE STORENational Bicycle Dealers Association777 West 19th St, Ste OCosta Mesa, CA 92627Telephone: 949-722-6909

BOOKSTOREAmerican Booksellers Association828 S BroadwayTarrytown, NY 10591www.bookweb.org

BUILDING MAINTENANCE/CUSTODIAL SERVICEBuilding Service Contractors AssociationInternational10201 Lee Hwy, Ste 225Fairfax, VA 22030Telephone: 800-368-3414www.bscai.org

Cleaning Management Institute13 Century Hill DrLatham, NY 12110-2197Telephone: 518-783-1281www.cmmonline.com

CANDY/CHOCOLATE SHOPNational Confectioners Association of the United States7900 Westpark Dr, Ste A 320McLean, VA 22102-4203Telephone: 703-790-5750www.candyusa.org

46

DRUG STORE/PHARMACYNational Association of Chain Drug Stores413 N Lee St, PO Box 1417-D49Alexandria, VA 22313Telephone: 703-549-3001www.nacds.org

DRY CLEANING/COIN-OPERATED LAUNDRYCoin Laundry Association1315 Butterfield Rd, Ste 212Downers Grove, IL 60515Telephone: 630-963-5547www.coinlaundry.org

International Fabricare Institute12251 Tech RdSilver Springs, MD 20904-1976Telephone: 800-638-2627www.ifi.org

ELECTRICAL CONTRACTORIndependent Electrical Contractors2010A Eisenhower AveAlexandria, VA 22314Telephone: 800-456-4324www.ieci.org

National Electrical ContractorsAssociation3 Bethesda Metro Ctr, Ste 1100Bethesda, MD 20814-3299Telephone: 301-657-3110www.necanet.org

EMPLOYMENT AGENCYNational Association of Executive Recruiters20 N Wacker Dr, Ste 2262Chicago, IL 60606Telephone: 312-701-0744www.naer.org

National Association of Personnel Services3133 Mount Vernon AveAlexandria, VA 22305Telephone: 703-684-0180www.napsweb.org

FLOOR COVERING STOREFloor Covering Installation Contractors Association7439 Millwood DriveWest Bloomfield, MI 48322-1234Telephone: 248-661-5015www.fcica.com

FLORISTSociety of American Florists1601 Duke StAlexandria, VA 22314-3406Telephone: 800-336-4743www.safnow.org

GIFT SHOPGift Association of America172 White Pine WayHarleysville, PA 19438-2851Telephone: 610-584-3108www.giftassn.com

Souvenir and Novelty Trade Association7000 Terminal Square, Ste 210Upper Darby, PA 19082Telephone: 610-734-2420

GROCERY STOREFood Marketing Institute655 15th St, NWWashington, DC 20005Telephone: 202-220-0600

National Grocers Association1825 Samuel Morse DrReston, VA 20190Telephone: 703-437-5300www.nationalgrocers.org

HAIR SALONHair InternationalPO Box 273Palmyra, PA 17078-0273Telephone: 717-838-0795

National Cosmetology Association410 N Michigan AveChicago, IL 60611Telephone: 800-527-1683www.salonprofessionals.org

HARDWARE STOREBuilders Hardware ManufacturersAssociation355 Lexington Ave, 17th FlrNew York, NY 10017-6603Telephone: 212-297-2122www.buildershardware.com

National Retail Hardware Association5822 W 74th StreetIndianapolis, IN 46278-1756Telephone: 317-290-0338www.nrha.org

HOME FURNISHINGS STORECasual Furniture Retailers710 E Ogden Ave, Ste 113Naperville, IL 60563Telephone: 800-956-2237www.casualfurniture.org

National Home Furnishing AssociationPO Box 2396High Point, NC 27261Telephone: 800-888-9590www.nhfa.org

International Home FurnishingMarketing AssociationPO Box HP-7High Point, NC 27262-5687Telephone: 336-869-1000www.furnituremarket.org

HOTEL/MOTEL/RESORT OPERATIONSAmerican Hotel Foundation1201 New York Ave, NW, Ste 600Washington, DC 20005-3931Telephone: 202-289-3180

Travel Industry Association of America1100 New York Ave, NW, Ste 450Washington, DC 20005Telephone: 202-408-8422www.tia.org

ICE CREAM/FROZEN YOGURT SHOPNational Ice Cream and Yogurt RetailersAssociation1429 King Ave, Ste 210Columbus, Ohio 43212Telephone: 614-486-1444www.nicyra.org

IMPORT/EXPORT SERVICEAmerican Association of Exporters and Importers51 E 42nd St, 7th FlrNew York, NY 10017-5404Telephone: 212-983-7008www.aaei.org

Federation of International TradeAssociation11800 Surise Valley Dr, Ste 210Reston, VA 22091Telephone: 800-969-3482www.fita.org

JEWELRY STOREAmerican Gem Society8881 W SaharaLas Vegas, NV 89117Telephone: 702-255-6500www.ags.org

American Gem Trade Association2050 N Stemmons Fwy, Ste 181Dallas, TX 75207Telephone: 214-742-4367

Jewelers of America52 Vanderbilt Ave, Flr 19New York, NY 10017Telephone: 800-223-0673www.jewelers.org

LANDSCAPING SERVICEAmerican Nursery and LandscapeAssociation1000 Vermont Ave, NW, Ste 300Washington, DC 20005Telephone: 202-789-2900www.anla.org

Association of Professional Landscape Designers710 E Ogden Ave, Ste 600Naperville, IL 60563Telephone: 630-579-3268www.apld.org

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LIQUOR STORENational Association of BeverageImporters-Wine-Spirits-Beer1025 Vermont Ave, NW, Ste 1066Washington, DC 20005Telephone: 202-638-1617www.nabi-inc.qpg.com

National Association of BeverageRetailers5101 River Rd, Ste 108Bethesda, MD 20816-1508Telephone: 301-656-1494

Wine and Spirits Wholesalers ofAmerica805 15th St, NW, Ste 430Washington, DC 20005-2602Telephone: 888-656-3241www.nabronline.org

MAIL ORDER BUSINESSDirect Marketing Association1120 Avenue of the AmericasNew York, NY 10036-6700Telephone: 212-768-7277www.the-dma.org

Mail Order Association of America1877 Bourne CtWantagh, NY 11793Telephone: 516-221-8257

PAINTING CONTRACTORIndependent Professional PaintingContractors Association of AmericaPO Box 1759Huntington, NY 11743-0630Telephone: 516-423-3654www.buildfind.com/assocont.html

Painting and Decorating Contractors of America3913 Old Lee Hwy, Ste 33BFairfax, VA 22030-2433Telephone: 703-359-0826www.pdca.org

PHOTOGRAPHIC STUDIOAmerican Photographic Artisians GuildBox 1373Tacoma, WA 98401-1373Telephone: 253-942-8433www.apag.net

Professional Photographers of America229 Peachtree St, NE, Ste 2200Atlanta, GA 30303-2206Telephone: 800-786-6277www.ppa.com

PIZZERIANational Frozen Pizza Institute2000 Corporate Ridge, Ste 1000McLean, VA 22102Telephone: 703-821-0770

PRINTING BUSINESSAmerican Institute of Graphic Arts164 5th AveNew York, NY 10010Telephone: 800-548-1634www.aiga.org

Printing Industries Association of New York State636 N French RdAmherst, NY 14228Telephone: 716-691-3211www.printnys.org

Printing Industries of America100 Dangerfield RdAlexandria, VA 22314-2888Telephone: 800-742-2666

REAL ESTATE AGENCYAmerican Society of Real EstateCounselors430 N Michigan AveChicago, IL 60611-4089Telephone: 312-329-8427www.cre.org

National Association of Real EstateBrokers9831 Greenbelt Rd, Ste 309Lanhana, MO 20706Telephone: 301-552-9340www.nareb.com

RESTAURANTNational Council of Chain Restaurants325 7th St, NW, Ste 1100Washington, DC 20004Telephone: 202-626-8183

National Restaurant Association1200 17th St, NWWashington, DC 20036-3097Telephone: 202-331-5900www.restaurant.org

SERVICE STATION/AUTO REPAIRSHOPAutomotive Service Association1901 Airport Freeway, Ste 100Bedford, TX 76095-0929Telephone: 817-283-6205www.asashop.org

Convenient Automotive ServicesInstituteBox 7010Silver Spring, MD 20907Telephone: 301-588-9077www.fastoil.com

TELEPHONE ANSWERING SERVICEAssociation of Tele ServicesInternational12 Academy AveAtkinson, NH 03811Telephone: 866-896-ATSIwww.atsi.org

TELEVISION/RADIO REPAIR SERVICEInternational Society of CertifiedElectronics Technicians3608 Pershing AveFort Worth, TX 76107Telephone: 817-921-9101www.iscet.org

National Electronic Service DealersAssociation3608 Pershing AveFort Worth, TX 76107-4527Telephone: 817-921-9061www.nesda.com

TRAVEL AGENCYAmerican Society of Travel Agents1101 King StreetAlexandria, VA 22314Telephone: 703-739-2782www.astanet.com

Association of Retail Travel Agents2692 Richmond Rd, Ste 202Lexington, KY 40509-1542Telephone: 800-969-6069www.artaonline.com

Institute of Certified Travel AgentsPO Box 812059, 148 Linden StWellesley, MA 02181-0012Telephone: 800-542-4282www.icta.com

TRUCKING BUSINESSAmerican Trucking Associations2200 Mill RoadAlexandria, VA 22314Telephone: 800-ATA-LINEwww.truckline.com

VIDEOCASSETTE RENTAL STOREInternational Communications Industries Association11242 Waples Mill Rd, Ste 200Fairfax, VA 22030-6079Telephone: 800-659-7469www.infocomm.org

Video Software Dealers Association16530 Ventura Blvd, Ste 400Encino, CA 91436Telephone: 800-955-8732www.vsda.org

WORD PROCESSING SERVICEIndependent Computer ConsultantsAssociation11131 S Towne Sq, Ste FSt. Louis, MO 63123Telephone: 800-774-4222www.icca.org

Regional OfficesCAPITAL REGIONHedley Park Place433 River Street, Suite 1003Troy, NY 12180Phone: 518-270-1130Fax: 518-270-1141Email: nys-capitaldist@empire.state.ny.us

CENTRAL NY REGION620 Erie Boulevard West, Suite 112Syracuse, NY 13204Phone: 315-425-9110Fax: 315-425-7156E-mail: nys-centralny@empire.state.ny.us

FINGER LAKES REGION400 Andrews Street, Suite 710Rochester, NY 14604Phone: 585-325-1944Fax: 585-325-6505E-mail: nys-fingerlakes@empire.state.ny.us

LONG ISLAND REGION150 Motor ParkwayHauppauge, NY 11788Phone: 631-435-0717Fax: 631-435-3399E-mail: nys-longisland@empire.state.ny.us

MID-HUDSON REGION33 Airport Center Drive, Suite 201New Windsor, NY 12553Phone: 845-567-4882Fax: 845-567-6085E-mail: nys-midhudson@empire.state.ny.us

HeadquartersALBANY30 South Pearl StreetAlbany, NY 122451-800-STATE-NY (1-800-782-8369)E-mail: esd@empire.state.ny.us

BUFFALO95 Perry Street, Suite 500Buffalo, NY 14203-3030Phone: 716-846-8200

NEW YORK CITY633 Third AvenueNew York, NY 10017-67061-800-STATE-NY (1-800-782-8369)E-mail: esd@empire.state.ny.us

MOHAWK VALLEYREGION207 Genesee StreetUtica, NY 13501Phone: 315-793-2366Fax: 315-793-2705E-mail: nys-mohawkval@empire.state.ny.us

NORTH COUNTRYREGIONDulles State Office Building317 Washington St., 2nd FloorWatertown, NY 13601Phone: 315-785-7907 Fax: 315-785-7935 E-mail: nys-northcountry@empire.state.ny.us

401 West Bay PlazaPlattsburgh, NY 12901Phone: 518-561-5642Fax: 518-561-8831E-mail: nys-northcountry@empire.state.ny.us

SOUTHERN TIERREGIONState Office Building44 Hawley Street, Room 1508Binghamton, NY 13901Phone: 607-721-8605Fax: 607-721-8613E-mail: nys-southerntier@empire.state.ny.us

400 East Church StreetElmira, NY 14901Phone: 607-733-6513Fax: 607-734-2698E-mail: nys-southerntier@empire.state.ny.us

WESTERN NEW YORKREGION95 Perry Street, Suite 500Buffalo, NY 14203-3030Phone: 716-846-8200E-mail: nys-westernny@empire.state.ny.us

CAPITALDISTRICT

LONGISLAND

NEWYORKCITY

GUS

HAMILTON

ESSEX

WARREN

WASHINGTON

SARATOGA

RENSSELAERSCHENECTADY

BANY

COLUMBIA

GREENE

BRONX

NEW YORKQUEENS

BROOKLYN

RICHMOND

NASSAU

SUFFOLK

WESTERNNEW YORK

NIAGARA

ERIE

CHAUTAUQUACATTARAU

ALLEGANY

Buffalo

FINGERLAKES

ORLEANSMONROE

GENESEE

WYOMINGLIVINGSTON

ONTARIO

YATES

SENECA

WAYNERochester

CENTRALNEW YORK

OSWEGO

MADISON

CORTLAND

CAYUGAONONDAGA

Syracuse

Troy

MID-HUDSON

ULSTER

SULLIVAN DUTCHESS

ORANGEPUTNAM

WESTCHESTER

ROCKLAND

New Windsor

HauppaugeNew York

S

TSCHUYLER

STEUBEN

CHEMUNGTIOGA BROOME

DELAWARE

Elmira Binghamton

MOHAWKVALLEY

ONEIDAHERKIMER

FULTON

MONTGOMERY

SCHOHARIEAL

OTSEGO

Utica

OUTHERN TIER

OMPKINS

CHENANGO

NORTHCOUNTRY

LEWIS

JEFFERSON

ST. LAWRENCE

FRANKLIN CLINTON

Plattsburgh

Watertown

48

49

New York State Department ofEconomic DevelopmentHabsburger Platz 180801 MünchenGERMANYPhone: 49 (0) 89-53-86-88-42E-mail: munich@empire.state.ny.us

New York State Department ofEconomic Development14, rue de BuciParis, FRANCEPhone: 33 (0) 689-888-761E-mail: paris@empire.state.ny.us

New York State Department ofEconomic DevelopmentChamber Services Ltd.22/F United Centre95 QueenswayHong Kong SARCHINAPhone: 852-2823-1266E-mail: erica@nylovesbiz.com.hk

New York State Department ofEconomic Development60 Yonge Street, Suite 1002Toronto, Ontario M5E 1H5CANADAPhone: 416-363-1999E-mail: toronto@empire.state.ny.us

WorldwideHeadquartersNew York State Department ofEconomic DevelopmentInternational Division633 Third Avenue, 33rd FloorNew York, NY 10017 USAPhone: 212-803-2300Fax: 212-803-2399E-mail:esdinternational@empire.state.ny.us

WorldwideOfficesNew York State Department ofEconomic DevelopmentLaser House, 2nd Floor132-140 Goswell RoadFinsbury, London EC1V 7DYUNITED KINGDOMPhone: 44 (0) 207-629-2720E-mail: london@empire.state.ny.us

New York State Department ofEconomic Development625 President Kennedy Ave WestSuite 1501Montreal, Quebec H3A 1K2CANADAPhone: 514-395-2400E-mail: montreal@empire.state.ny.us

New York State Department ofEconomic Development24 Kanfei Nesharim StreetEntrance B, 4th floor #411Jerusalem 95464ISRAELPhone: 972-2-654-2047E-mail: israel@empire.state.ny.us

New York State Department ofEconomic DevelopmentMexico Trade OfficeMiguel Angel de Quevedo No. 8-603Col. Guadalupe Chimalistic01070 MEXICO, D.F.Phone: 011-52-55-5663-3185E-mail: mexico@empire.state.ny.us

MULTI-STATE TRADEOFFICES: COUNCIL OFGREAT LAKES GOVERNORS

To contact the following tradeoffices please call (212) 803-2300

CGLG - Brazil Trade OfficeTomaselili, Volker & Zulatto Assoc.Alameda dos Arapanes, 725–172A04524-001 Sao Paulo BRAZILMagda Volker, DirectorPhone: 55-11-3061-2127E-mail: mvolker@tvzinternational.com.br

CGLG - Chile Trade OfficeAugusto Leguia Sur 160, Of. 81Las Condes, Santiago CHILE 7550257Veronica Medina, DirectorPhone: 56-2-244-2435E-mail: vmedina@tradechile.cl

CGLG - South African Trade OfficeP.O. Box 67110Highveld 0169Centurion, SOUTH AFRICARichard Zurba, DirectorPhone: 27-12-665-1973E-mail: cglg@cglgsa.org

David A. PatersonGovernor, State of New York

Dennis M. Mullen Chairman and Chief Executive Officer Designate

Empire State Development0909-2