Business Guide

The Entrepreneur's Business Owner Start Up Information

Is Entrepreneurship (business ownership) for you?

In business, there are no guarantees. There is simply no way to eliminate all the risks associated with starting a small business - but you can improve your chances of success with good planning, preparation, and insight. Start by evaluating your strengths and weaknesses as a potential owner and manager of a small business. Carefully consider each of the following questions.

Are you a self-starter? It will be entirely up to you to develop projects, organize your time, and follow through on details.

How well do you get along with different personalities? Business owners need to develop working relationships with a variety of people including customers, vendors, staff, bankers, and professionals such as lawyers, accountants or consultants. Can you deal with a demanding client, an unreliable vendor, or a cranky receptionist if your business interests demand it?

How good are you at making decisions? Small business owners are required to make decisions constantly - often quickly, independently, and under pressure.

Do you have the physical and emotional stamina to run a business? Business ownership can be exciting, but it's also a lot of work. Can you face six or seven 12-hour work days every week?

How well do you plan and organize? Research indicates that poor planning is responsible for most business failures. Good organization of financials, inventory, schedules, and production can help you avoid many pitfalls.

Is your drive strong enough? Running a business can wear you down emotionally. Some business owners burn out quickly from having to carry all the responsibility for the success of their business on their own shoulders. Strong motivation will help you survive slowdowns and periods of burnout.

How will the business affect your family? The first few years of business startup can be hard on family life. It's important for family members to know what to expect and for you to be able to trust that they will support you during this time. There also may be financial difficulties until the business becomes profitable, which could take months or years. You may have to adjust to a lower standard of living or put family assets at risk in the short-term.

Questions to Review When Considering a Business

1) Why do you want to go into business?
2) Have you had experience in running your own business?
3) Have you investigated the product or service?
4) Would you consider a multiple product or service (diversification)?
5) Do you have the time to dedicate to a business?
6) Are is spouse and/or family supportive of the endeavor?
7) Would you have adequate financial strength to personally put 10% to 25% into the business to start it up?
8) Would any personal infusion of capital cause a considerable strain on you or the family?
9) Have you considered your financial need required back from the business (personal)?
10) Are there any businesses in the regiona that would be considered competition?
11) Is it feasible? A business plan will help determine the feasibility of the business.
12) Have you investigated the key ongoing costs to operate the business?
13) Are you being realistic, as to the revenue stream, for your business with the population in the area?
14) Are you willing to work a 60 hour week for a year to get the business up and going?
15) Will your family schedule allow the needed time to give the business a running chance to succeed?
16) Do you plan to pay yourself as an employee monthly or just pay yourself at the end of the year after expenses?
17) Is there a viable location for your business now?
18) Would you consider leasing a building to get started as opposed to buying a building upfront?
19) If your business is product related, will you have a POS system to manage sales and inventory?
20) Are you conservative on revenues and inflated on the expenses for the business plan?
21) Have you included yourself (the owner) as receiving a wage in the expenses for your business plan financials?
22) Do you know whether or not your credit score will allow you the ability to acquire an operational or working loan, or business development program?
23) Have you considered this business to be a minority owned business? (structure)
24) What is your timetable to begin this business? Does the opening correspond with an event or location that will have a higher product sales time?

Every business has three primary areas that must be done; the entrepreneur must complete these areas:
1) Work on Product/Service,
2) Financial/Accounting, and
3) Marketing of Business

One of the three parts of a business must be contracted out, so find the one you are best at and keep it to yourself to work (IN) you business with, then considering working (ON) your business with the others, by hiring a professional. Don’t forget to add this cost to your budget and business plan!

Always have a strong relationship with five primary individuals when starting/operating a business. These are: an Accountant (for working on tax items and financials), a Lawyer (for agreements and business structure), a Banker (for setting up your financial needs in start-up and operation), an Insurance Planner (for taking care of the risks of having a business) and your Economic Development office or representative (for networking of information and providing ideas, options for the birth, growth and succession of your business).

Consideration of a business through planning should always be done in a progressive (BUT non-rushed) manner, especially in developing the financial portion of the business plan. Remember that a business is much like a human life, it has specific cycles it goes through during its life: a beginning, growth, maturing, & transition stage. All these steps need to be considered when starting a business. Think baby steps… a person crawls, then stands, then walks, then runs!

Success in business is never automatic. It isn't strictly based on luck - although a little never hurts. It depends primarily on the owner's foresight and organization. Even then, of course, there are no guarantees. In his book, Small Business Management, Michael Ames gives the following reasons for small business failure:
1) Lack of experience (in field of business product and/or running a business in general)
2) Insufficient capital (financial capital or ‘line of credit’ for the operation costs during first year)
3) Poor location or Poor marketing/advertising (on building or around building)
4) Poor inventory management
5) Over-investment in fixed assets
6) Poor credit arrangements
7) Personal use of business funds
8) Unexpected growth
Gustav Berle adds two more reasons in his book - “The Do It Yourself Business Book”:
9) Competition
10) Low sales

These reasons aren't meant to scare you, but to prepare you for the rocky path ahead. Underestimating the difficulty of starting a business is one of the biggest obstacles entrepreneurs face. However, success can be yours if you are patient, willing to work hard, and take all the necessary steps. On the upside, it's true that there are many reasons not to start your own business. But for the right person, the advantages of business ownership far outweigh the risks.
• You will be your own boss.
• Hard work and long hours directly benefit you, rather than increasing profits for someone else.
• Earning and growth potential are far greater.
• A new venture is as exciting as it is risky.
• Running a business provides endless challenge and opportunities for learning.

If you fail to plan – then you had better plan to fail!

Write down everything you can think of about the business (legal pad or other means) – no matter how trivial. You can always go back and cross out information, but most of the time when an original thought comes (it may never come back). Write it down. Carry a note pad with you at all times.

As you gather statistics (online or otherwise), document where you gathered this information (website, book). This helps you reference information that is vital in the future and saves time if you need to go back to a particular on-line site or book.

Figures for calculations; such as salaries or other multi-formula calculation – leave the calculation on your paper. In this way you know how you got to the final figures and how it can be proved.

Putting all your ideas down (scratch pad, recorder, whatever). – No matter what the idea – WRITE IT DOWN! It may be something that really makes your business successful or a point in your business that should not be forgotten.

Start asking questions of similar businesses • Successes
• Challenges
• Location of competitors, local and regional

Informal questions in your mind about the business – What if?

• Who will run it
• Who will do the work – make the product or give the service
• Who will do the marketing of the business – the selling of the product or service
• Who will be in charge of the day to day books, receipts, billing, inventory
• Who will do the financial books and taxes

• What are you going to be doing?
• What is your product or service?
• What are the limitations of the business or area/location?
• What should be my next step?

• When to get started?
• When do I start the process?
• Start setting a timetable of when to get started

• Location of business

• Timing
• Circumstances
• Do you like what you do as this business?

• Business Plan
• Information – Education
• Financing - Assistance
• Mentoring
• Networking
• Follow-up – Updating

A business plan is essential for starting a business. There are two types of business plans, one is a simple financial business plan and the other is a long term, extensive business plan. The differences are outlined briefly below in a “Simple Plan” and “Complex”.

Simple financial business plan: (includes) – Think of this plan as: “a BASIC plan (3-5 pages) to get started”
• Business overview: Products/services offered, mission, expected employees and duties, goals, business structure and ownership breakdown, duties of owners
• Market overview: (who are you selling to? local/regional; youth/aged; professional sector)
• Business capital overview (one-time start-up costs) – these are needed items, usually higher cost with bids (i.e. building, building renovation, equipment, signage, other necessary items)
• Three year cash flow (start with a yearly estimate; then if you can, break-down into a monthly estimate)

Complex Long Term Financial business plan: (includes) — this plan usually is 30-50 pages long
• Executive Summary: Objective – Mission – Keys to Success
• Company Summary: Start-up Summary
• Services: Description, Competitive Comparison, Technology Used, Future Services
• Market Overview: Market Trends, Demographics for the Market, Business Affiliations, Competition in area,Buying Patterns of residents, On-line market possibilities, Sales (local, regional, & on-line) Main Competitors (why you consider them competitors)
• Strategy and Implementation: Competitive Edge, Position Strategy, Pricing Strategy for service or product, Promotion/Advertising for business
• Sales Estimates: Monthly, 1st year, 5 year, long term growth objectives
• Management Overview: Personnel Plan: Owner/Employee, Specialists, Full-time / Part-time Employees, Professionally Hired organizations
• Financial Plan: Budget, Break-even Analysis, Estimated/Projected Profit and Loss, Estimated/Projected Cash Flow, Estimated/Projected, Balance Sheet, Business Ratio’s (percentages on which you structured/made your financials)

If you are pursuing a “start-up” business as a NEW OWNER, your focus should start on the “Simple” Business planning process (shown above) to get started. IF your business is going to offer a unique service or product then more detailed gathering of information on the market should be carried out before pursuing a launch of the business. Inevitably a “Complex business plan” should be completed at some time during the first five years of the business, if not before.

Many times, a person will jump into a business operation due to circumstances without planning. These circumstances could include: special sale of property or equipment or unexpected sale of business (wanting to purchase) at a financially challenging time. Planning is VITAL to long-term duration of any business.

Depending on the stage of development your business is currently positioned within, will pre-determine which of these plans you may want to begin with. Beginning entrepreneurs that are just starting their journey of being a business owner should have a simple and realistic starting point. Working with a “Simple” business plan will help the owner with the immediate opening or development of their business is more realistic. . Eventually all businesses should prepare a long-term business plan at some time during their development, growth, or expansion. Of course, it would be prudent to have a long-term business plan created before any business begins, but in some circumstances a short-term financial is more realistic.

Any financial support for your business development will require at the very least a simple financial business plan, with some revolving loan programs or other federal program loans requiring a long-term business plan. The most important aspect of starting you business is “just starting” on these simple financial plans. The Sutton City Hall office has an excel program available to e-mail out to you for helping you design this simple plan. During your initial meeting with the Sutton City Administrator, we will talk about items in this booklet and then e-mail out this to you to help in your planning.

The Sutton City Administrator will do everything we possibly can to assist with your development of this business and assist with your business plan, BUT we will NOT write it for you. If we did, this would be a GREAT injustice to you and your business. As we will not be the person running your business or asking for the funding to get it started, it only makes sense that “YOU” have a very strong working knowledge of how your business will grow and develop from the very beginning. Obviously, we are here to assist, lend help in reviewing, providing networking for you, and provide options and information. We can NOT guarantee the success of your business through any assistance given through staff or financial support, that burden rests completely on the business owner’s dedication and determination in planning and action to follow through with making his/her business a success.

Starting a plan requires you to track down information (both revenues and expenses) for your business plan. Your revenues will need to be figured out as to how much your services or products will bring in for the business per month to help calculate a realistic yearly revenue stream. In many circumstances, the amount of services or products sold are a best guess in rural areas, but whenever actual data can be gathered which is comparable to your products or services, it needs to be. When figuring the revenue (income streams) in your business plan, always look at estimating a “lower” figure than expected for sales or services. This allows for a safe margin, especially if your sales are ‘not’ what they expect to be the first few years.

Calculating your expenses is sometimes a lot harder to predict for your business, but again it is a matter of gathering as much actual data a possible on your business ‘type’. In many cases, you can gather some actual data for items such as rent, loan payment schedules, and utilities. If you are the only employee of the business, pay yourself-first. Always put yourself down each month as being paid a monthly salary “ownership draw”. This will allow you to still make a living while running your business, even if the business itself does not make a large profit or any profit. Don’t get greedy with you salary, put in the bare minimum for a couple of years. If you make a profit at the end of the year, the owner (you) can always take some extra out as a bonus and save it back for a rainy day. An “other” category should always be put into your expenses, as a buffer for unexpected costs during the year. In the following (2) pages, there is a master budget list to help you “not” forget any expenses for your business. All these expenses may not pertain to your business, but it definitely provides you with a resource of expenses of which may save you from missing one in your planning stage.

What Are Start Up Costs?

Start-up costs are expenses that are incurred (usually) for the first year to get your business up and going. In most circumstances, a few particular items are the highest costs and are usually only a one time infusion of funds that will need to be paid back over the next few years with interest through a traditional loan. They are: 1) Land – either to buy or rent, 2) Equipment / Tools / Vehicles, 3) Inventory, 4) Raw Materials and 5) Personnel. In all categories, especially these, pay close attention to make sure that an over expenditure of purchases for start-up items IS NOT made. All these typical start-up costs are paid for by a short or mid-long term loan. Some items which are considered “operational costs” can be included with your “start-up costs”, but try to keep all operational costs separated from an initial ‘start-up loan”. They are highlighted in yellow below.

There are many Indirect costs (overhead costs), which are involved in the first year and subsequent years the business is operational. Indirect costs are typically called “Operational costs” and these expenses continue throughout the life of the business. A person needs to plan on what is needed to run your business in case revenue is not what is expected (planned for). A back-up reserve fund or LOC (line-of-credit) through a bank should be considered to help a business carry through in “challenging times” which WILL occur when starting a business. Possible first year or subsequent year indirect costs:

Operational Expenses (for cash flow)

• Labor
• Returns and Allowances
• Salaries and Commissions
• Employee Benefits
• Payroll Tax
• Insurance
• Licenses
• Marketing and Advertising
• Rent
• Utilities
• Phone
• Repairs and Maintenance
• Office Supplies
• Professional Fees
• Loan Interest (Amortized Loan Payment)
• Loan Principal (Amortized Loan Payment)
• Dividends
• Owner's Draw
• Investors Draw

Start Up Costs

• Cash Disbursements
• Leasehold Improvements
• Raw Materials
• Equipment
• Labor
• Loan Interest
• Returns and Allowances
• Loan Principal
• Salaries and Commissions
• Dividends
• Employee Benefits
• Owner's Draw
• Payroll Tax
• Investors Draw
• Insurance
• Total Cash Disbursements
• Licenses
• Marketing and Advertising
• Rent
• Utilities
• Phone
• Repairs and Maintenance
• Office Supplies
• Professional Fees
• Security Deposits
• Land
• Buildings
• Vehicles

When setting up a financial business plan as you get started on your business, put down an area (on a separate sheet) that covers your key start up costs. These are costs that most generally you will be financing over a long period of time through a structured loan payment (including both principal and interest) in your financial plan. To help with calculating the payments on a loan, go to: These numbers should be some of the last (if not, the last figures) in your financial plan, because these numbers depending on local or regional incentives, could bring down the cost of starting or purchasing your business. Always assume you will be going after a loan for starting your business, because there are very few grant programs (other than local incentive grants) and those programs have limited resources. Always estimate your expenses higher and revenues lower than expected, when figuring your financials. This will always lead to a more reality driven plan. Every new owner HOPES for the best, but must also PLAN for the worst!

Click here to view a sample budget list.

If you’re thinking about starting a business you’ve probably taken the initial step of putting together a basic or general plan. But like every endeavor, successful businesses develop and flourish from having thorough, proper business plans in place. So here are some key resources to help get you moving in the right direction:

Business Planning Tools

Business Plan Outlines for Startup or Established Business (DED)
The Ultimate Guide to Business Plans
Business Owners' Toolkit
Model Business Forms – The Entrepreneur

Before Starting Your Business

It may be necessary to register with the following agencies before operating your business in Nebraska:

Nebraska Secretary of State (402-471-4079)

The Secretary of State is responsible for registering trade names and business names. It is important to register with the Secretary of State if doing business as anything other than yourself.

Internal Revenue Service (1-800-829-4933)

The IRS issues Employer Identification Numbers, the unique number that identifies your business. Check with the IRS to see if you need an EIN or contact the IRS with questions.

Nebraska Department of Revenue (402-471-5823)

It is necessary to register with the Department of Revenue if you will have employees, engage in retail sales, rent or lease property, or provide any taxable services. In order to register, fill out the Form 20 on the Department of Revenue's website and submit it according to the form instructions. If you have any questions, review the Frequently Asked Questions section on NDOR's website or contact them.

Nebraska Department of Labor (402-471-9898)

The Department of Labor handles Unemployment Insurance, New Hire reporting, contractor registration, and other labor-related programs. If you are planning on hiring employees, please contact the Department of Labor to ensure you are properly covered.

Publicly Funded Business Counseling & Training

Service Corps of Retired Executives (SCORE)
Small Business Administration (SBA)
Nebraska Business Development Center (NBDC)
Rural Enterprise Assistance Project (REAP)
Invest Nebraska

Legal Services

Nebraska Bar Association: Directory of Nebraska's Attorneys
Creighton Legal Clinic: Legal assistance for low-income small business
University of Nebraska-Lincoln College of Law: Entrepreneurship Legal Clinic

Accounting Services

Directory of Nebraska's Licensed Certified Public Accountants

Other Resources

Business USA - U.S. Government's primary business resource site
Tools and Programs for Veteran Entrepreneurs
Labor Market Information
Directory of Nebraska City and County Governments
Franchising: Guide to Buying a Franchise -- Introduction to Franchising (SBA-FranNet) -- Franchise Survey Institute -- International Franchise Association

The 5 C's of Credit

Your bank is in business to make money. Consequently, when a bank lends money it wants to ensure that it will be paid back. The bank must consider the 5 "C's" of Credit each time it makes a loan. Other groups giving support toward businesses to get started or expand consider the same.

Capacity to repay is the most critical of the five factors. The prospective lender will want to know exactly how you intend to repay the loan. The lender will consider the cash flow from the business, the timing of the repayment, and the probability of successful repayment of the loan. Payment history on existing credit relationships - personal and commercial - is considered an indicator of future payment performance. Prospective lenders also will want to know about your contingent sources of repayment.

Capital is the money you personally have invested in the business and is an indication of how much you will lose should the business fail. Prospective lenders and investors will expect you to contribute your own assets and to undertake personal financial risk to establish the business before asking them to commit any funding. If you have a significant personal investment in the business you are more likely to do everything in your power to make the business successful.

Collateral or guarantees are additional forms of security you can provide the lender. If the business cannot repay its loan, the bank wants to know there is a second source of repayment. Assets such as equipment, buildings, accounts receivable, and in some cases, inventory, are considered possible sources of repayment if they are sold by the bank for cash. Both business and personal assets can be sources of collateral for a loan. A guarantee, on the other hand, is just that - someone else signs a guarantee document promising to repay the loan if you can't. Some lenders may require such a guarantee in addition to collateral as security for a loan.

Conditions focus on the intended purpose of the loan. Will the money be used for working capital, additional equipment, or inventory? The lender will also consider the local economic climate and conditions both within your industry and in other industries that could affect your business.

Character is the personal impression you make on the potential lender or investor. The lender decides subjectively whether or not you are sufficiently trustworthy to repay the loan or generate a return on funds invested in your company. Your educational background and experience in business and in your industry will be reviewed. The quality of your references and the background and experience of your employees will also be considered.

When reviewing a loan request, the lender is primarily concerned about repayment. To help determine its likelihood, many loan officers will order a copy of your business credit report from a credit-reporting agency. Therefore, you should work with these agencies to make sure they present an accurate picture of your business. Using the credit report and the information you have provided, the lending officer will consider the following issues:
• Have you invested savings or personal equity in your business totaling at least 25 percent to 50 percent of the loan you are requesting? Remember, no lender or investor will finance 100 percent of your business.
• Do you have a sound record of credit-worthiness as indicated by your credit report, work history and letters of recommendation? This is very important.
• Do you have sufficient experience and training to operate a successful business?
• Have you prepared a loan proposal and business plan that demonstrate your understanding of and commitment to the success of the business?
• Does the business have sufficient cash flow to make the monthly payments?

How to Write a Loan Proposal

Approval of your loan request depends on how well you present yourself, your business, and your financial needs to a lender. Remember, lenders want to make loans, but they must make loans they know will be repaid. The best way to improve your chances of obtaining a loan is to prepare a written proposal.

A well-written loan proposal contains:

General Information

• Business name, names of principals, Social Security number for each principal, and the business address
• Purpose of the loan - exactly what the loan will be used for and why it is needed
• Amount required - the exact amount you need to achieve your purpose

Business Description

• History and nature of the business - details of what kind of business it is, its age, number of employees and current business assets • Ownership structure - details on your company's legal structure

Management Profile

• Develop a short statement on each principal in your business; provide background, education experience, skills and accomplishments.

Market Information

• Clearly define your company's products as well as your markets.
• Identify your competition and explain how your business competes in the marketplace.
• Profile your customers and explain how your business can satisfy their needs.

Financial Information

• Financial statements - balance sheets and income statements for the past three years. If you are starting out, provide a projected balance sheet and income statement.
• Personal financial statements on yourself and other principal owners of the business
• Collateral you are willing to pledge as security for the loan

Keep in mind that you should not have to worry about this part, UNTIL your business plan is done. Also, don’t overwhelm yourself with the anxiety of asking for assistance – because if you finished your plan “ALL” of your information the loan departments or group will be requiring above, you will have already completed in your business plan and most certainly know backwards and forwards.