Module 2

PERFORMANCE OBJECTIVE

To assess relevant issues faced by individuals who are planning to start a new business. With this information, you will be able to provide Clients with the guidance that they need. These issues include the following:

What it Takes: Traits of Successful Entrepreneurs
Can the Product be Sold: Analyzing the Market
Can the Business Make Money: Analyzing Profitability
Preparing the Plan
Funding the Business
Legally Forming the Business
Keeping Records
Insurance
Taxes
Regulations

TRAINING TASKS

You may be assigned to work with a Certified Business Consultant (Mentor) to complete this Module. Upon completion, the Center Director will ensure that you have accomplished the following tasks by signing the Training Checklist.

Read Module 2, Starting a Business, in its entirety
Compete the Module 2 Exam Questions

INTRODUCTION

There are many issues that must be addressed when starting a new business. Some relate to the personal situation of the entrepreneur. Others relate to market conditions. Still others relate to legal and regulatory matters.

It is not intended that the Business Consultant become an expert in all of these areas. It is important, however, that the Business Consultant gain a general understanding of each so that he/she can guide the Client through the process of starting a new business. The information provided in this Module is intended for that purpose. With experience, the Business Consultant will develop a deeper understanding of these and other issues relating to starting a new business.

The following 10 topics will provide the Business Consultant with insight into what it takes to successfully start a new business.

1. What it takes: Traits of successful entrepreneurs

Entrepreneurs need to know their strengths and weaknesses if they are to successfully start and manage a small business. Through consulting sessions, the Business Consultant can help entrepreneurs identify and build on their strengths, and recognize and overcome their weaknesses.

2. Can the product be sold: analyzing the market

Having an idea for a product or service is only the beginning. The entrepreneur needs to understand how customers perceive the product or service and how they distinguish it from competing products and services. This website provides insight into recognizing the importance of a truly differentiated product or service. Review it to gain an understanding of product differentiation, product features and product benefits.

With an understanding of how customers perceive a product or service, the entrepreneur can begin to develop a sustainable competitive advantage. Being a small business, however, he/she has limited resources. Being able to compete in management segments of the market can be key to avoiding more powerful competition and using limited resources wisely. This website discusses niche marketing. Read it to understand the importance of finding the right market niche for a small business to compete in.

Early in the planning process, the entrepreneur should prepare a marketing plan. These websites give a general overview of the content of a marketing plan. While no two marketing plans will look exactly alike, you should review the information on the websites and gain and understanding of how to conduct market, SWOT and competitive analyses.

Developing a Marketing Plan
Market Analysis
How to Perform a SWOT Analysis

To further assist in understanding the format and content of marketing plans, review sample plans here .

3. Can the business make a profit: The breakeven point

With a marketable product or service and a carefully targeted niche market, the entrepreneur is preparing the foundation for starting a viable business. One key factor has yet to be determined, however. Can the business make money? How many of the products or services have to be sold before the business begins to make a profit?

While no one knows the true potential for a business before it opens, a reasonable forecast of the amount of products or services that must be sold to make the company profitable can be calculated. With this information in hand, the entrepreneur can ask the following question, “With all that I now know about my product and the market that I will be competing in, is the volume of sales needed to achieve profitability doable?” If the answer is yes, then the entrepreneur can proceed with the next phase of planning. If the answer is no, then he/she may have to rethink the business model.

A tool that can help the entrepreneur make this determination is called a Breakeven Analysis.

4. Funding the business

All new businesses require some level of initial funding. Explore this website to learn about the different sources of funding available to small business owners.

Most business owners will need financing to fund their start-up business. Learn the difference between equity and debt financing by clicking here.

For many start-up business owners, getting a loan is the best way to secure initial funding. The first step in preparing to go to a lender is to determine how much money is needed and for what purpose. This website provides general information about estimating start-up costs.

Getting a loan means finding a lender who will loan you the money you need. What are lenders looking for in a loan candidate? Is it important for you to be able to discuss how commercial lenders look at a loan request and how well qualified a Client is to meet that criteria.

Increasingly, lenders are using credit scores as a first screen in reviewing an application for a loan. Because of the importance being placed on this measure of credit worthiness, it is important for you to understand how a credit score is determined. Learn about credit scores here.

5. Preparing the plan

With an achievable Breakeven Point, an understanding of how much funding is needed and a good sense of his/her “loan-ability,” the entrepreneur is ready to prepare a business plan. Many entrepreneurs dislike the idea of writing a business plan. But it is one of the most important steps in starting a new business.

Just like no two marketing plans will look the same, no two business plans will look the same. The final format, content and length of a business plan should be dictated by its purpose and the audience for which it is intended. This document provides one example of the format for a business plan. Note that this business plan includes a start-up expenses estimate and a Breakeven Analysis. Also included in this business plan is a profit and loss statement, balance sheet and cash flow analysis. These three financial statements will be discussed in detail in Module 5: Record Keeping and Financial Analysis. Review these additional websites for more sample business plans.

6. Legally forming the business

Deciding on what legal form a business should take has significant tax and liability implications. This website provides general information about the basic legal forms that a business can take. It is not intended that you become a legal or tax expert, but by understanding the advantages and disadvantages of each, you can provide invaluable guidance to Clients.

7. Keeping records

A good record keeping system is essential in order to provide information required by the IRS, investors and lenders. Records are extremely important for planning and control: how much money was made, what the expenses were, if there was a profit or loss, what money is owed to the business, and who is owed money by the business. From the IRS perspective, entrepreneurs should know the following things:

Why should records be kept?
What kinds of records should be kept?
How long should records be kept?
What is the burden of proof?
What are some simple cash record keeping procedures?

Get a general understanding of the answers to these questions here.

8. Insurance

While some legal forms of a business can provide additional levels of liability protection, every owner must understand the insurance needs of his/her small business. You can learn about the different types of insurance that an entrepreneur should consider for his/her business here.

9. Taxes

Local, state and federal tax requirements for small businesses can be complex. Because of lack of knowledge about tax rules and concerns about compliance, Clients often view tax requirements as a critical concern when starting a new business. You can, therefore, provide valuable assistance by helping them gain a basic understanding of their tax requirements. You should be able to refer them to the appropriate tax authorities for more detailed answers to their specific questions.

While it is not the intention that you become a tax expert, a general understanding of tax requirements is necessary if you are going to provide the level of experience expected by most Clients. A complete list of Colorado business taxes is provided here. Visit this website for updates on excise taxes.

Because many businesses in Colorado sell a product or service that is subject to the Colorado Sales and Use Tax, it is important that you have a good understanding of this tax and its filing requirements. This website gives general information about this important tax.

Additional information about federal self-employment tax requirements, IRS virtual workshops and online lectures can be found on the following sites:

10. Regulations

The state of Colorado regulates certain businesses and requires business owners to get a license to operate them. It is important that you know what kinds of businesses are regulated and/or require a license so they can refer Clients to the proper state agency. Use this SBDC Industry Licensing Database to get a general understanding of the kinds of businesses that are regulated or require a license from the state of Colorado.

Respond to the questions below to demonstrate your understanding of the ten topics covered in Module 2.

1. Traits of Entrepreneurs: What are some traits of successful entrepreneurs? What are some reasons why businesses fail? *

2. Marketing: What is the difference between features and benefits? Why is it important to be able to communicate benefits to customers? What is meant by terms like segmentation, differentiation and niche? What is a SWOT analysis? *

3. Breakeven Point: Why is it important to know the breakeven point? Calculate the breakeven point if a unit costs $1, sells for $1.50 and fixed costs per month are estimated to be $3,500? *

4. Funding the Business: What is the difference between debt and equity financing? What are lenders looking for in a good loan candidate? *

5. Business Plan: Why is it important for the entrepreneur to prepare his/her business plan and not have someone else do it for them? *

6. Legal Forms of Business: What are some of the advantages and disadvantages of the four common legal forms of business? *

7. Keeping Records: Why is it important to keep good business records? *

8. Insurance: Why is it important to have business insurance? What are various types of insurance that a business owner might need? *

9. Taxes: What are the different forms of taxes that a business owner might have to pay? *

10. Regulation: Why is it necessary that some businesses in Colorado are regulated by the state and may require licensing? Where can you find licensing information so you can properly advise Clients if their business is subject to these regulations? *

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