Frequently Asked Questions (FAQs)
Any individual looking to start a small business is faced with challenges that require financial, accounting, and management skills, among others. The intelligent entrepreneur who may not possess all of these skills will seek assistance, and the Pennsylvania SBDCs strive to provide this assistance. This FAQ section covers many of the answers to your difficult questions about starting a business or questions you may have about your existing business.
About the Penn State SBDC
- What is the Penn State Small Business Development Center?
The Penn State SBDC program provides no-cost confidential consulting and low-cost training in proven management fundamentals, helping small business owners and potential entrepreneurs make sound decisions for the successful operation of their business. The Penn State SBDC is one of eighteen accredited SBDCs in Pennsylvania, and one of more than a thousand centers found nationwide.
- How can the Penn State SBDC help someone just thinking of starting a business?
The Penn State SBDC offers Entrepreneurial Assessment, Pre-Business, and Business Planning seminars for those individuals who want general information on starting a business, or who are in the initial start-up phase. SBDC consultants can then help you with the details of turning your plan into a successful reality.
- Do you have to be in business to use the services of the Penn State Small Business Development Center
No. You only have to be considering the idea of opening a business or researching the feasibility of a proposed profit-making venture.
- My business has been established for some time. How can the Penn State SBDC help me?
The Penn State SBDC provides an array of consulting services to established businesses, including one-on-one consulting in business planning, marketing and promotion, financial analysis, accounting, record keeping, human resources, strategic planning, and new market diversification. In addition, a Procurement Technical Assistance program is available for companies that want to bid on government contracts, and an International Business program is available for firms that want to enter into or expand in the global marketplace. The Environmental Management Assistance Program provides improvements to your bottom line through pollution prevention, energy efficiency, and strategic environmental management. The Technology Commercialization Assistance Program assists high-growth and technology firms with sophisticated business management issues. The Penn State SBDC helps businesses in all stages.
- Can I get help from the Penn State SBDC if my business is set up as a not-for-profit business?
Because of the SBDC’s funding guidelines, the Penn State SBDC is not able to assist businesses that are established as not-for-profit.
- What can I expect from my Penn State SBDC consultant?
At your initial meeting, your consultant will review your business needs or proposal, determine a course of action, and identify areas that both of you will be responsible for completing. Your consultant will then follow up with an engagement letter detailing your meeting and listing the items that both of you will be working on, along with an estimated time frame for completion, and anticipated outcomes.
- Does the Penn State SBDC charge for its services?
The management and technical assistance services are provided at no charge to the client. Nominal fees are generally charged for training seminars and special events.
- Who pays for the SBDC program?
The Penn State SBDC is part of a statewide network of colleges and university centers that is a joint venture of federal, state, and private-sector agencies and organizations, including the U.S. Small Business Administration and the Pennsylvania Department of Community and Economic Development. Each agency, along with the host university, contributes to the financial support of the program.
Starting a Business
- What basic skills do I need to run a business?
The basic skills include a working knowledge of record keeping; financial management; personnel management; market analysis; breakeven analysis; products or services; federal, state, and local taxes; legal structures; and communication skills.
- What business should I choose?
Usually, the best business for you is the one in which you are most skilled and interested. As you review your options, you may wish to consult local experts and businesspersons about the growth potential of various businesses in your area. Matching your background with the local market will increase your chance of success.
- How long will it take to start a small business?
As long as it takes you to complete your feasibility study, prepare your business plan, gather your money, buy what you need to buy, and arrange your business operation affairs. This could take a few weeks or many months. If you have difficulty with any of these items, the time to learn and solve problems must be added.
- How can I get my business certified as minority- or women-owned?
At the federal level, Congress considers a minority-owned business to be a business owned by anyone other than a Caucasian. The business MUST be owned and at least 51 percent controlled by one or more minorities. Women are not considered a minority. It is a self-certifying process, and no paperwork needs to be filled out. To learn more about women- or minority-owned businesses, consult the Pennsylvania Bureau of Minority and Women Business Opportunities.
- What insurance should I have?
An important aspect of your business is a well-planned insurance program. Types of insurance you should consider are:
- property insurance
- liability insurance
- product liability insurance
- automobile insurance
- workers’ compensation
- disability insurance
- business interruption insurance
- health insurance
- life insurance
- Should I buy a franchised business to start?
There are some definite advantages to starting out with a franchised business. There are many different types of franchises. Some offer fair value for what you pay, and others are rip-offs. Get legal or business counseling advice before purchasing a franchise. Approximately 40 percent of present-day retailing is done through the franchises. There must be some advantages to owning a franchise.
- Should I buy an existing business to start?
An existing business is already established in the market. It has existing, and hopefully loyal, customers. You avoid the hassle and expense of creating awareness of and demand for your product or service. The key is making sure that the business fits your desires and capabilities. Is it the kind of business you want? Can you afford it? Can you operate it?
- I want to start a home-based business. What do I do?
If you are entertaining the idea of having a home-based business, contact your city or county planning and zoning department. Inform them of the type of business that you want to start, and where you will be doing it. They will outline the laws and regulations that will apply to your scenario. Contact them before you start the business, not after.
- Where should I start?
A great resource to learn more about starting your own business is the “First Step” workshop offered by the SBDC network. This course is offered all across Pennsylvania.
- What form of business structure do you recommend for a new business?
Each form—sole proprietorship, partnership, or corporation—has its advantages and disadvantages. The one you should pick depends on your circumstances, including:
- your financial condition
- the line of business you’re entering
- the number of employees
- the risk involved
- your tax situation
- What is a feasibility study?
This is a preliminary business plan used to answer the question “Should I do that?” It includes facts and projections that outline what will happen IF something is done. It allows a businessperson to look at probable results before anything is done to produce those results. These studies can be brief or lengthy.
- What is a business plan?
A business plan precisely defines your business, identifies your goals, and serves as your firm’s résumé. It describes the products and services you will sell, the customers to whom you will sell them, the production, management, and marketing activities needed to produce your offerings, and the projected profit or loss that will result from your efforts.
- Why do I need to define my business in detail?
You need to fully understand exactly what you have to offer to your customers. It may seem silly to ask yourself, “What business am I really in?” but some owner-managers have gone bankrupt because they never answered that question. One watch store owner realized that most of his time was spent repairing watches, while most of his money was spent selling them. He finally decided he was in the repair business and discontinued the sales operations. His profits improved dramatically.
- How long will it take to write a business plan?
A well-thought-out business plan generally takes anywhere from six months to a year to complete, but it can be less, depending on how committed you are to the business, and how much time you are willing to spend on writing your plan. Your business plan is a joint venture with your consultant.
- Will the SBDC write my business plan for me?
While the SBDC will not write your business plan for you, we provide the assistance and guidance needed to write the plan and can help polish your plan for effectiveness and make it a valuable tool to manage the business.
- Can you name a “good” reference (book) that can be used in the creation of a business plan for a restaurant?
The National Restaurant Association—the trade/industry group for the restaurant industry—has a number of publications you may find useful. You can find more information on these publications on the National Restaurant Association’s Web site at http://www.restaurant.org/ (click on “Publications”), or they can be ordered by calling 800-482-9122.
- What does marketing involve?
Marketing is every contact that you have with your customers. There are four basic aspects of marketing, often called the “four Ps”:
- product—the item or service you sell
- price—the amount you charge for your product or service
- promote—the ways you inform your market as to who, what, and where you are
- provide—the channels you use to take the product to the customer
Marketing encompasses much more than just advertising or selling. For example, a major part of marketing includes knowing everything that you can know about your customers: What do they want? What can they afford? What do they think? Your understanding and application of the answers to such questions play a major role in the success or failure of your business.
- Should I have a Web site?
There are four general reasons to have a Web site:
- to sell products and services
- to give information
- to increase visibility
- to provide additional customer service
First decide if any of these reasons make sense for you. Selling products and services on the Internet successfully involves having a great product, attracting a targeted market, and/or selling to and satisfying your customers.
- How do I obtain a domain name for my business?
Start by going to Network Solutions, an online directory of domain. If the name you’ve chosen is not already registered, you can pay Network Solutions an annual fee for the rights to use the domain name.
- What is my market potential?
The principles of determining market share and market potential are the same for all geographic areas. Determine a customer profile (Who is most likely to buy from me?) and the geographic size of the market (How many of them are there?). This is the general market potential. Knowing the number and strength of your competitors (How much business can I steal from them?) will give you the market potential specific to your enterprise.
- How can I find profiles on typical industry customers?
There are a few places you might try to locate these kinds of statistics:
- Trade Associations: Trade and industry groups often conduct extensive market research and make this research available to members. While they often focus on national or statewide trends, you might find local statistics through a group’s local chapter. The SBDC can also provide relevant, up-to-date information on your industry.
- Local Chamber of Commerce: Chambers of commerce also conduct market research. They primarily focus on economic development issues in key industries. An index to the Pennsylvania Chambers of Commerce can be found here.
- How do I find suppliers for my business?
Contact your local SBDC for information concerning suppliers. Our consultants have information concerning international, governmental, and private suppliers for your business. Another option is attending trade shows. Trade shows are a great place to meet potential suppliers and wholesalers. One online resource for schedules of trade shows is the Trade Show News Network at http://www.tsnn.com/.
- Do I need a lawyer to start a business?
No, but it’s wise to get the best advice possible when you’re starting out. An attorney is one source of the expertise you’ll need to draw on.
- Should I use a lawyer to draw up a contract or a lease?
Yes, if you do not feel confident about what you are agreeing to, or if you want a legal review of the terms and conditions. The time for the lawyer is BEFORE you sign something, not after.
- What are the differences in organizational structure, and what legal structure should I choose?
There are three principal kinds of business structures: sole proprietorship, partnership, and corporation. A brief description of each type is provided below:Sole Proprietorship
A sole proprietorship is the simplest business structure to organize. A sole proprietorship is owned by one individual (not a married couple) who has complete control of the business. Revenues are considered personal income and are taxed at the owner’s personal tax rate.Partnership
A partnership involves two or more people conducting a business together. This business structure is also fairly simple to organize, but may be more costly than a sole proprietorship because it requires a separate tax return for each partner, as well as a partnership agreement.
A limited partnership is two or more individuals who jointly own a business. This form of business allows for general partners and limited partners. Limited partners are generally financially liable for debts only to the extent of their investment. They have limited or no control over management of the company. The general partners manage the company and have the greatest potential risk and reward from the operations of the business.
Limited Liability Partnership (LLP)
In this type of partnership, the liability of each partner can be limited to exclude obligations resulting from professional mistakes made by other partners, or malpractice actions against other partners. The partners do, however, continue to share liabilities resulting from all other activities of the partnership.
A corporation can be complex and expensive to organize. Legal assistance in setting up a corporation is strongly advised. The corporation is recognized as a completely separate legal entity from the owners. A corporation can limit the liability exposure of the owners. However, there can be some tax disadvantages with a corporation.
Limited Liability Company (LLC)
A limited liability company can provide the liability protection of a corporation and the federal tax benefits of a partnership. It is formed in a similar manner to that of a corporation, although directors are called managers while shareholders are called members. The name of the company must include the words “Limited,” “LLC,” or “Ltd.” In an LLC the individual members or managers are not personally liable for debts, obligation, or liabilities of the company. Articles of organization must be filed with the Pennsylvania Secretary of State’s office.
- What kind of registration and licenses are generally required to start my business?
There are specific requirements in each state, county, and locality. Basic licenses and registrations that a business may need include the following:
- Local—A business license from the city, town, or county, depending on your location, will usually be necessary. In addition, you’ll have to meet zoning laws, building codes, and similar regulations.
- State—If your business isn’t a corporation and your full name isn’t in the name of the business, you’ll have to register under what’s called the Fictitious Name Act. You should also file for a Sales and Use Tax Number. In some lines of business (like restaurants, barbershops, and real estate offices), specific licenses are needed.
- Federal—You may need an Employer Identification Number (EIN).
- How do I register my small business?
If you decide to incorporate or become a limited partnership or a limited liability company, you will need to register that entity with the Bureau of Corporations at the Pennsylvania Department of State. If you organize your business as a sole proprietorship (a business owned and operated by an individual) or a general partnership, you do not need to register your business entity with the state. However, there may be certain city or town permits/licenses that are required to operate your business.
- How different does my business name have to be?
It should be different enough to avoid confusion with other businesses. The reason you use a business name is to help customers identify you. If your name is similar to others, this identification is made difficult. Avoid confusion by picking a name that is unique.
- How do I determine if the name I choose is okay to use?
State law requires that every business enterprise operating under an assumed name register the name as a “fictitious name.” To determine whether a name you’re considering is in use by another corporation, or is protected by a trademark or service mark, contact the Pennsylvania Corporation Bureau at 717-787-1057.
- Do I need to obtain a Federal Identification Number?
A sole proprietorship without employees can use the proprietor’s Social Security number as its tax ID number. Forming any other business structure (partnership, LLC, corporation, or sole proprietorship with any employees requires obtaining a Federal Identification Number from the Internal Revenue Service ( Form SS-4, Application for Employer Identification Number).
- What are patents?
Patents are protections for inventions and discoveries. A patent is a property right that grants the owner an exclusive right to exclude others for a period of time (usually 20 years) from making, using, offering, selling, or importing anything that utilizes the intellectual property contained in the patent without the permission of the patent owner. Patents are expensive to obtain and generally require the use of an attorney who specializes in this field. In the United States, patents are handled by the U.S. Patent and Trademark Office.
- What are trademarks and service marks?
Trademark and service mark registrations are protections for certain things that distinguish one source from another. This registration allows the holder to exclude others from using its mark, generally for as long as that mark remains in use by the owner. A trademark is a word, phrase, symbol, or design, or a combination of words, phrases, symbols, or designs, that identifies and distinguishes the source of the goods of one party from the sources of others. Slogans are registered as service marks. This provides trademark protection to a slogan that uniquely identifies your company or service. In essence, a service mark is the same as a trademark except that it identifies and distinguishes the source of a service rather than a product. Trademark and service mark registrations are sometimes expensive to obtain and often require the use of an attorney who specializes in this field. In the United States, trademarks and service marks are handled by the U.S. Patent and Trademark Office.
- What is a copyright?
Copyright is a form of protection provided to the authors of “original works of authorship,” including literary, dramatic, musical, artistic, and certain other intellectual works. A copyright generally gives the owner, for a period of time (usually the life of the author plus 70 years, or up to 120 years for works for hire), the exclusive right to do, and to authorize others to do, the following: to reproduce the work, to prepare derivative works based upon the work; to distribute copies of the work to the public, to perform the work publicly, and to display the work publicly. A copyright exists immediately upon creation of a work; however, registering that copyright provides additional protections. Copyright registration is fairly inexpensive and easy to obtain. In the United States, copyright registration is handled by the U.S. Copyright Office.
Financing and Loans
- How do I finance the start-up of a small business?
To determine financing needs, you should first prepare a business plan with a complete set of financial projections, including a balance sheet, income statement, and cash flow statement. With a properly completed business plan, you will have identified your funding needs. Banks will lend to some business start-ups if they are satisfied with your business plan, your level of equity investment, the collateral you have to pledge to the loan, and your credit history and experience. If your request is denied, ask your bank if they would consider the loan with a guarantee from the Small Business Administration (SBA).
- How much money do I need to get started?
Once you have taken care of your building and equipment needs, you must also have enough money on hand to cover operating expenses for at least a year. One of the leading causes of business failure is insufficient start-up capital. Consequently, you should work closely with your SBDC consultant or accountant to estimate your cash flow needs.
- Should I borrow funds?
Yes, provided you can handle the debt and provided the borrowing will benefit your business. Handling the debt means that you will be able to repay the principal and interest without undue hardship on you or your business. By using debt, the owner’s control is not diluted as it is when money is raised by selling equity.
- What do I have to do to get a loan?
When you apply for the loan, you must provide projected financial statements and a cohesive, clear business plan that supplies the name of the firm, location, production facilities, legal structure, and business goals. A clear description of your experience and management capabilities, as well as the expertise of other key personnel, will also be needed.
- Will the U.S. Small Business Administration (SBA) loan money to me?
Except in isolated and special situations, the SBA does not make direct loans. Its loan activity is in the form of participating loans and loan guarantees. You must deal with a bank to reach the SBA. You can think of the SBA as a level above your bank that is providing incentives to your bank to make it easier for you to get debt financing. The bank plays a major role in evaluating your loan application and in administering the loan. The bank’s agreement is necessary before the SBA will get involved.
- Can I get an SBA loan to refinance present debt?
Yes. Debt refinancing is allowed under the SBA programs. It is not the preferred form of SBA involvement, but it will be supported if the refinancing has a beneficial business consequence. Refinancing just to get out of a jam is usually not favored.
- Does the SBDC provide financing?
The SBDC does not provide financing. Our assistance is technical and educational in nature. We work with banks and other lending agencies and organizations to assist in putting together financial projections, but the actual financing comes from outside sources.
- What type of collateral do I need for a loan?
Repayment ability from the cash flow of the business is a primary consideration in the SBA loan decision process, but good character, management capability, collateral, and the owner’s equity contribution are also important considerations. All owners of 20 percent or more of the business are required to personally guarantee SBA loans. The SBA does not deny approval for an SBA guaranty loan solely due to lack of collateral; however, it can be used as a reason in addition to other credit factors.
- What are the alternatives in financing a business?
Committing your own funds is the first financing step. It is certainly the best indicator of how serious you are about your business. Risking your own money gives others confidence to invest in your business. You may want to consider family members or a partner for additional financing. Banks are an obvious source of funds. Other loan sources include commercial finance companies, venture capital firms, local development companies, and life insurance companies. Trade credit, selling stock, and equipment leasing offer alternatives to borrowing.
- Where can I find a grant to start my small business?
Grant monies are usually not available for new venture businesses, with a few exceptions of high technology businesses. You can find grant information at your local library, http://www.cfda.gov/, or http://www.sba.gov/expanding/grants.html.
Accounting and Bookkeeping
- How much do I need to know about accounting and bookkeeping?
Since numbers constitute the language of business, the more you know about this language, the more you will understand your business, and the better-informed your decisions will be. At a minimum, you should understand your bookkeeping system. This means you should understand how your money is spent and how much money you have coming in. You should also be able to read and understand basic financial statements, including the balance sheet and cash flow statement.
- Why are financial projections necessary?
Financial projections are estimates of future business activities. By estimating the future, you have a target or goal to work for. Even if the projections are not accurate, you will have a frame of reference to follow.
- What is a balance sheet?
Often referred to as the basic business financial statement, the balance sheet shows three things about a business: assets, liabilities, and owner’s equity. Assets are things that are owned by the business. Liabilities are things that are owed to others. Owner’s equity is the difference between assets and liabilities.
- What is an income statement?
An income statement, often called profit and loss statement, or P&L, is the scorecard for business. It shows the revenue, expenses, and profit or loss for a period of time, usually a month, quarter, or year.
- What is a cash flow statement?
The simplest form of cash flow statement shows the timing of cash receipts coming into the business and cash payments being made. You don’t record any transactions until there is an exchange of cash.
- What is equity?
Equity has two different, but related meanings. It can be the money that the business owner invests in his/her own business. Equity also means “net worth,” which is the difference between the assets and liabilities of a business. It is the portion of the assets that the owner would get after all the liabilities are paid.
- What is capital?
To operate any type of business, you may need equipment, tools, office equipment, vehicles, computers, or other items. These assets are purchased with cash, usually referred to as capital.
- Is it better to lease or buy the store (plant) and equipment?
This is a good question and needs to be considered carefully. Leasing does not tie up your cash; a disadvantage is that the item then has no resale or salvage value since you do not own it. Careful weighing of alternatives and a cost analysis will help you make the best decision.
- Should I hire a CPA?
You can get accounting advice from different sources. A certified public accountant (CPA) is probably the most competent professional to guide you in many different areas. Others, such as public accountants, bookkeepers, and specialists who focus on small business record keeping, can also be useful. CPAs are usually the most expensive, but may still be the best value because of their breadth of knowledge and their ability to assist you with all aspects of your business finance, accounting, and tax issues.
- How do I know what taxes are required for my business?
Once you start your business, you will have to start paying certain taxes to both the federal government and the Commonwealth of Pennsylvania. The specific taxes you are required to pay or remit depend on your type of business. The Pennsylvania Department of Revenue Web site ( http://www.revenue.state.pa.us/) provides information on business taxes.
- Do I need a sales tax number, and how do I register for one?
If you sell tangible personal property, or provide certain fabrication, rental, or other particular services, you must obtain a sales tax identification number, also known as a seller’s certificate, from the state of Pennsylvania. To obtain the appropriate forms, visit the Pennsylvania Department of Revenue Web site ( http://www.revenue.state.pa.us/) or call 717-787-1064.
- If I am self-employed, how do I report my taxes?
Self-employed business owners are required to pay state and federal income taxes and self-employment taxes on the profits generated by the business. Once your liability for federal income tax and self-employment tax exceeds $5,000, you will need to remit the tax payments to the IRS. You can estimate and report your federal taxes by using the 1040-ES form, and your state taxes by using the 1040ES-ME form.
- Which business expenses can I deduct for income tax purposes?
Generally, all the expenses you incur to start and operate your business are deductible; however, many are subject to various IRS rules. Study some IRS publications (such as the Business Tax Kit) and look at the tax returns for your form of business to get an idea of what you may be able to deduct as business expenses.
- Can I hire my children and get a tax deduction?
Yes. There are special tax laws that apply to hiring your children to work for you. Consult with your tax professional to determine how these laws would apply to your business.
- Can I buy a new car in my business and get a tax deduction?
Yes, provided the car is used in the business. If it is used exclusively in your business, you can deduct all of its cost and operating expenses. If it serves partly for business and partly for personal use, you can allocate the business portion and claim a percentage of its cost and expenses.
- If I operate my business from my home, what can I deduct from my taxes?
You can deduct all regular expenses associated with your business. This is no different from operating your business from a location outside your home. Consult IRS Publication 334, the IRS, a CPA, a tax lawyer, or some other source familiar with these rules.
- How do I register to become an employer?
To register as an employer, you need to obtain a federal Employer Identification Number (EIN) by filing IRS Form SS-4. You will also need to register for state income tax withholding and for unemployment contributions by filing the Pennsylvania Enterprise Registration Form (PA-100). Employees will need to complete, and you will need to maintain a file of, Employee’s Withholding Allowance Certificate W-4 obtained from the IRS, and Employment Eligibility Verification Form I-9 obtained from U.S. Citizenship and Immigration Services. Obtain workers’ compensation insurance from your business insurance carrier.
- How can I find and keep qualified employees?
Two of the greatest challenges for any business are hiring the right people and keeping them. Employees, and, more important, their contributions, are a business’s most important asset. So how do you go about finding, selecting, and retaining the best people?
Decide What You Want
Before you hire an employee, you need to know exactly what you want. List the skills, experience, and other attributes you are looking for in the categories of:
- must-have—skills that you do not have the time, money, or desire to teach but that are absolutely necessary to do the job
- should-have—sets of skills in which the candidate should have some degree of knowledge or skill
- nice-to-have—what you’d love to have but can live without
Search in the Right Places
The harder it is for you to find the skills you need, the wider the net you must cast. You may choose from local media, the state’s employment center, and using the Internet. View any employment ad as a marketing tool for your company, making it as appealing as possible. Put a headline on your ad that describes the best benefits you can offer. Be sure to add your must-have list of skills, experience, and education. To get qualified people without having to weed through a pile of applications, be specific about what you say and very selective about where you place the ad.
Don’t underestimate the value of networking. You may choose to ask your best employees if they know someone who would fit into your organization and might be interested in joining, or to use your network in the community to find employees.
Conduct a Thorough Interview
Give the applicant a complete and accurate picture of your business. In today’s tight job market, you have to sell both yourself and your company. Through your questions, cover the job’s must-haves, should-haves, and nice-to-haves and be sure to obtain a clear picture of where the candidate is in relation to these attributes. Remember, good questions lead to good answers—the more you learn about each applicant’s experience and skills, the better prepared you are to make your decision. If you find yourself talking as much or more than the candidate, stop—you learn about the candidate only when you are listening. Don’t be afraid to press a candidate for more information—it is then that you may learn important information.
Hire the Right Person
Some tips for choosing whom to hire:
- Go with your gut.
- Accomplishments are what really matter.
- Attitude counts.
- Be objective.
Three critical elements in hiring the right people for the job are skills match, company fit, and job match. Be objective in determining which candidates have the best overall fit.
Hang On to Good Employees
Retention of employees is as important as the initial hire. An individual’s suitability to a particular job is the single most important factor in job performance and retention. Be sure to provide people jobs that fit with their personality and then take the time for a proper orientation. Listen to them and continue to provide training and skills development opportunities. Set clear expectations, show concern for employees, and treat them fairly.
- What other financial responsibilities do I have for employees?
You must withhold federal and state income taxes, contribute to unemployment and workers compensation systems, and match Social Security contributions. You may also wish to inquire about key employee life or disability insurance.
- What is OSHA?
OSHA (Occupational Safety and Health Administration), a federal agency under the U.S. Department of Labor, oversees workplace safety. All employers are required to provide a safe and healthy workplace and are subject to no-notice safety and health inspections by OSHA. Employers with more than ten employees are required to maintain a record of injuries on the OSHA 200 form, which must be available for inspection for a period of five years.
- How do I know if I should hire someone?
Consider these conditions:
- Can you afford an employee?
- Will you really save time?
- With an extra employee, would you have more time to market your services and expand your business?
- Would an extra employee allow you a chance to produce more products or serve more clients?
- Would an extra employee allow you to give your customers more efficient service or quicker delivery, with the result that higher quality would lead to more customers?
- How can I effectively interview applicants? Use interviews along with background checks and references in order to help determine whether or not the applicant is suitable for your position. This way, you will have an idea of the applicant’s personality as well as qualifications.
- Is my product or service needed in other countries?
Before you make the decision to “go international,” make certain that there is a market for your product or service. State and federal trade development agencies publish trade statistics and country market reports that can help you learn more and make informed decisions.
- Will my product or service have to be adapted for international markets?
The factors that will determine whether you need to modify your product or service for your target markets are government regulations, nongovernmental standards, geography and climate, cultural sensitivity, and servicing.
- How should I market my product or service internationally?
Strategies that work in the United States probably won’t work in Japan or China and may not work in Europe or Latin America without some adapting. Learn more about specific strategies by talking to experts in the countries in which you’re interested.
- Do I need to translate my sales literature?
If you are serious about succeeding in the market, it is strongly recommended that you translate your marketing materials into the language of the prospective buyer. You’ll also want to convert all measurements from the U.S. system of measurement to the metric system, which is used by virtually every other country of the world.
- Will I need to learn another language?
Having someone within your company who is capable of speaking in the language of the culture in which you are doing business demonstrates commitment to the market. While it’s true that much international business is conducted in English, to be truly successful you must respect your partners’ culture. If necessary, hire a translator or interpreter.
- How do I learn about differing customs that could affect my company, product, or way of doing business?
The best way to learn the ins and outs of doing business in another country is to travel there to learn and to have face-to-face meetings. But, first, do your homework. There is a growing body of resources available on each country’s history, social and political systems, protocol, and business etiquette available online. Many firms specialize in intercultural communications for businesspeople, whether traveling or hosting foreign visitors.
- How should I ship my product overseas?
A successful export program uses reliable, cost-effective transportation. The buyer should compare competitive products on the basis of delivered cost. Your company needs to make sure that the product is delivered in good condition and on time, and that the cost is kept in line with that of competitive products. The transportation choice, therefore, should blend the most cost-effective of these factors.
- How can I finance my international sales?
A top concern of most new exporters is where to get help at both pre- and postexport financing stages of the export process. Pre-export financing is the financing required of the exporter that covers the period from building the product to shipping. Postexport financing refers to the financing that spans the period from shipment through receipt of payment from the overseas buyer. Government sources of export financing are the SBA Export Working Capital Program and EX-IM Bank’s working capital guarantee program.
- How can I ensure I’ll get paid for my international sales?
Before making the sale, evaluate the risks of doing business in a particular market. Once you and your buyer have come to terms, you will need to agree on one of the many different methods of payment, including cash in advance, letter of credit, and open account.
- How long will it take to see a profit from international sales?
Naturally, the time from when you initiate your international activity to when you make your first sale and start enjoying profits will vary greatly from firm to firm and depend on your export experience and the challenges of the market. In general, expect the turnaround to be at least one to two years.
- What agencies, groups, or others can provide assistance to my company on the various facets of the exporting process? How much will this expertise cost?
SBDC consulting services are free. Its education and training programs are offered at a nominal fee. Industry trade associations also sponsor a variety of programs specific to their industries. Watch the business calendars in the local media and on this Web site to keep up with export training opportunities.
- What is the Military Reservist Economic Injury Disaster Loan Program?
The purpose of the Military Reservist Economic Injury Disaster Loan Program (MREIDL) is to provide funds to eligible small businesses to meet their ordinary and necessary operating expenses that they could have met but are unable to meet because an essential employee was “called up” to active duty in his/her role as a military reservist. These loans are intended only to provide the amount of working capital needed by a small business to pay its necessary obligations as they mature until operations return to normal after the essential employee is released from active military duty. The purpose of these loans is not to cover lost income or lost profits.
- When should I apply for the loan?
The filing period begins on the date the essential employee is ordered to active duty, and ends 90 days after the date the essential employee is discharged or released from active duty.
- What is an essential employee?
An essential employee is an individual (whether or not an owner of the small business) whose managerial or technical expertise is critical to the successful day-to-day operations of the small business.
- What is meant by “a period of military conflict”?
“Period of military conflict” means:
- a period of war declared by Congress, or
- a period of national emergency declared by the Congress or the President, or
- a period of contingency operation.
A contingency operation is designated by the Secretary of Defense as an operation in which our military may become involved in military action, operations, or hostilities (e.g., peacekeeping operations).
- What does “substantial economic injury” mean?
“Substantial economic injury” means that your business either has been or will be adversely impacted by the deployment of the military reservist and that the business is:
- unable to meet its financial obligations as they mature, and/or
- unable to pay its ordinary and necessary operating expenses, and/or
- unable to market, produce, or provide a service ordinarily marketed, produced, or provided.
- How do I obtain a Military Reservist Economic Injury Disaster Loan application?
You can contact the U.S. Small Business Administration.
Small Business Statistics and Research
- Why should small business issues receive more attention in classrooms?
- Two-thirds of college students intend to be entrepreneurs at some point in their careers; however, business school textbooks stress large- rather than small-firm examples, something that has frustrated many students after graduation.
- Individuals with more education are more likely to become entrepreneurs, and they are also more likely to open a business employing more people.
- Classrooms, both within and beyond schools of business, are filled with potential innovators. The key is to provide the necessary skills that will allow them to foster these talents and start new businesses.
Sources: Students in Free Enterprise; Advocacy focus groups.
- How important are small businesses to the U.S. economy?
- total approximately 23 million in the United States, with roughly 75 percent of the firms having no employees.
- represent 99.7 percent of all employer firms.
- employ half of all private-sector employees.
- pay 44.3 percent of the total U.S. private payroll.
- generate 60 to 80 percent of net new jobs annually.
- create more than 50 percent of nonfarm, private gross domestic product (GDP).
- are employers of 39 percent of high-tech workers (such as scientists, engineers, and computer workers).
- made up 97 percent of all identified exporters and produced 29 percent of the known export value in FY 2001.
Sources: U.S. Bureau of the Census; Advocacy-funded research by Joel Popkin and Company (Research Summary #211); U.S. Department of Labor, Bureau of Labor Statistics, Current Population Survey; U.S. Department of Commerce, International Trade Administration.
- Is there a link between entrepreneurship and economic activity?
- There is a strong correlation between national economic growth and the level of national entrepreneurial activity in prior years, according to the Global Entrepreneurship Monitor (GEM).
- In GEM countries, 71 percent of nascent or would-be entrepreneurs expect to create 1 to 20 jobs, and 21 percent expect to create at least 20 jobs in their new ventures.
- Colleges and universities with high levels of R&D expenditures lead to increased firm formations in the surrounding metropolitan areas. Such R&D expenditures contribute to economic growth via these new firms.
Sources: Global Entrepreneurship Monitor; Advocacy-funded research by BJK Associates (Research Summary #222).
- Where can I get more information?
Visit our link to statistics sites for more information about Pennsylvania’s small businesses and general business statistics.
North American Industry Classification System (NAICS)
- What is NAICS?
NAICS is the North American Industry Classification System. It replaced the Standard Industrial Classification (SIC) system on January 1, 1997. Federal government agencies that collect statistics are now required to use NAICS instead of SIC.
- Why is NAICS used instead of SIC?
NAICS classifies over 350 more industries than SIC does. Most of these new industries are in the services sectors, many that are very relevant to today’s economy. For example, NAICS includes industries that manufacture semiconductor machinery and fiber optic cable, reproduce software, and provide satellite telecommunications, paging, cellular, and other wireless telecommunications. Warehouse clubs and superstores, telemarketing bureaus, hazardous waste collection, and casinos are also new in NAICS.NAICS is more consistent than SIC. Businesses that use similar production processes are grouped together. NAICS gives special attention to new and emerging industries, service industries in general, and industries that produce advanced technology. The SIC system, which was last revised in 1987, does not include many of these industries, or at least does not describe them well, and it will never be updated or changed.
- How do I find out what my NAICS code is?
You can find the NAICS code for your business at http://www.census.gov/epcd/www/naics.html.
- Where can I find more information about small business size standards and NAICS together?
You can find more information about NAICS at http://www.census.gov/epcd/www/naics.html.
Small Business Innovation Research (SBIR)
- What is the SBIR program?
The Small Business Innovation Research (SBIR) program is a highly competitive three-phase award system that provides qualified small business concerns with opportunities to propose innovative ideas that meet the specific research and development needs of the federal government.
- What are the three phases of the SBIR program?
Phase I is a feasibility study to evaluate the scientific and technical merit of an idea. Awards are for periods of up to six months in amounts up to $100,000.
Phase II is to expand on the results of, and further pursue the development of, Phase I. Awards are for periods of up to two years in amounts up to $750,000.
Phase III is for the commercialization of the results of Phase II and requires the use of private-sector or non-SBIR federal funding.
- Do you have to be a Phase I awardee in order to be considered for Phase II of a project?
- What is the small business size standard for purposes of the SBIR program?
A small business concern for purposes of award of any funding agreement under the SBIR program is one that, including its affiliates, has a number of employees not exceeding 500.
- How can a small business concern obtain funding under SBIR?
A small business can obtain funding under SBIR by being the recipient of a competitively awarded SBIR funding agreement.
- What is an SBIR funding agreement?
An SBIR funding agreement is a contract or grant entered into between an SBIR-participating federal agency and a small business concern for the performance of experimental, developmental, or research work funded by the federal government.
- Who are the participants in the SBIR program?
The following federal agencies are eligible to participate:
- Department of Agriculture
- Department of Commerce
- Department of Defense
- Department of Education
- Department of Energy
- Department of Health and Human Services
- Department of Transportation
- Environmental Protection Agency
- National Aeronautics and Space Administration
- National Science Foundation
- Can a firm go directly to a Phase II award without having to compete for Phase I?
No. The SBIR program was created for NEW innovations to meet existing federal R&D needs. The results of a Phase I are a determining factor in deciding whether there will be a Phase II award to continue the effort.
- Is a small U.S. firm still eligible to compete for an SBIR award if it forms a 50-50 joint venture with a nonprofit or foreign firm?
- Are foreign-based firms eligible for SBIR awards?
No. To be eligible for award of SBIR funding agreements, a small business concern must be independently owned and operated, have a principal place of business located in the United States, and be at least 51 percent owned by U.S. citizens or lawfully admitted permanent resident aliens.
- Are nonprofit concerns eligible for SBIR awards?
- May a portion of an SBIR award be subcontracted?
For Phase I a minimum of two-thirds of the research and/or analytical effort must be performed by the proposing firm, and for Phase II a minimum of one-half of the research and/or analytical effort must be performed by the proposing firm.
- Can a federal agency other than the one originating the Phase I award make the Phase II award under the same SBIR topic?
No. Awards of this type would be the result of an unsolicited proposal and therefore would be considered outside the scope of the SBIR program.
- What is the difference between SBIR solicitations and the SBIR Pre-Solicitation Announcement?
SBIR solicitations are specific requests for proposals released by the federal agencies participating in the program that may result in the award of Phase I SBIR funding agreements.SBIR Pre-Solicitation Announcements, released by the SBA, contain pertinent data on SBIR solicitations that are about to be released by the participating federal agencies.
- Are data rights protected and for what length of time?
Data rights are protected by agencies for a period of not less than four years from delivery of the last deliverable under the Phase I, II, or III award.
- Will innovations that have been patented or have patents pending be considered under SBIR?
No. SBIR is a program for NEW high-tech innovations.
- Can participating federal agencies provide funds for SBIR commercialization?
No. Private sources of capital should be used. However, the agencies can provide support for technical assistance. SBIR awardees are encouraged to seek information on all of the services made available to the small business community.
Small Business Technology Transfer (STTR)
- What is the STTR program?
STTR is a highly competitive three-phase program that reserves a specific percentage of federal research and development funding for award to small businesses in partnership with nonprofit research institutions to move ideas from the laboratory to the marketplace, to foster high-tech economic development, and to address the technological needs of the federal government.
- What are the three phases of the STTR program?
Phase I is the start-up phase for the exploration of the scientific, technical, and commercial feasibility of an idea or technology. Awards are for periods of up to one year in amounts up to $100,000. Phase II is to expand Phase I results. During this period the R&D work is performed, and the developer begins to consider commercialization potential. Awards are for periods of up to two years in amounts up to $500,000. Phase III is the period during which Phase II innovation moves from the laboratory into the marketplace. There is no STTR funding in this phase.
- Must you be an established business when you propose?
No. However, you must be organized as a business at the time of award.
- Who can propose?
Only small for-profit businesses can propose.
- What is the size criterion?
The applicant must be a small business concern with 500 or fewer employees including subsidiaries and affiliates. The size of the nonprofit collaborator is not relevant.
- How are future rights to projects developed under STTR determined?
The small business concern and the research institution must develop a written agreement prior to a Phase I award. This agreement must be submitted to the awarding agency if requested.
- Who are the federal participants in the STTR program?
The following five federal departments and agencies are eligible to participate:
- Department of Defense
- Department of Energy
- National Aeronautics and Space Administration
- Department of Health and Human Services
- National Science Foundation
- Can I skip Phase I and begin at Phase II?
No. Phase II awards can be awarded only to firms having successfully completed Phase I at the same awarding agency.
- Can you subcontract in STTR—either party or both?
Yes. Either party may subcontract or they may jointly fund a subcontractor.
- Can a small business concern participate in both SBIR and STTR simultaneously at the same or differing agencies?
Yes, but they may not perform the same or essentially similar work under more than one contract or grant. Collecting funds more than once for the same work is fraud.
- Must a successful Phase I small business concern use the same institution in Phase II
No. The small business concern can change research institutions in Phase II.
- Will an unsolicited proposal be accepted in the STTR program?
No. Proposals must respond to the solicitation as published by one or more of the participating agencies.
- Must the small business concern and/or the research institution be located in the United States?
Yes. Both the small business concern and the institution must be on U.S. soil.
- Can a Phase III follow-on contract for funding be made, without competition, to the firm that successfully completes Phase I and II?
Yes, the firm may be given a sole source contract in Phase III for further work or production.
- What is the minimum percent breakout for small firms and institutions in conducting research?
Small business concerns must perform at least 40 percent of the work, and research institutions must perform at least 30 percent.
- Where can I go for further information on how I get started or if there is other assistance available?
Information can be obtained from the SBA Online Bulletin Board by dialing 800-697-4636. To receive information on other SBA programs, contact your local SBA office or call the SBA Answer Desk at 800-8-ASK-SBA.
- What is an entrepreneur?
An entrepreneur is a person who organizes and manages a business undertaking, assuming the risk for the sake of profit. An entrepreneur sees an opportunity, makes a plan, starts the business, manages the business, and receives the profits.
- What is a mentor, and how can I find one?
A mentor is a caring, experienced individual who volunteers as your guide. Your mentor can help you focus your talents and create a successful business. You can have more than one mentor. National mentor organizations can assist you in finding a cyber-mentor or a mentor in your community.
- What is a business plan, and why do I need one?
A business plan precisely defines your business, identifies your goals, and serves as your firm’s résumé. Its basic components include a current and pro forma balance sheet, an income statement, and a cash flow analysis. It helps you allocate resources properly, handle unforeseen complications, and make the right decisions. Because it provides specific and organized information about your company and how you will repay borrowed money, a good business plan is a crucial part of any loan package. Additionally, it can tell your sales personnel, suppliers, and others about your operations and goals.
- What type of insurance do I need to protect my business?
The following types of insurance may be needed when starting your business:
- business interruption
- product liability
- How do I get started?
You need to list your reasons for wanting to go into business. Some of the most common reasons for starting a business are to:
- be your own boss
- have financial independence
- have creative freedom
- use your skills and knowledge
- What legal issues do I need to consider before starting my business?
- Patents, copyrights, etc.
- Business structures
- Business tax forms
- Bill of Rights
- Teen safety
- Child labor
Additional information on these resources can be found on the Legal Issues page.
- How do I protect my business idea from being stolen?
There are several ways to protect your business. They include:
- patent—a property right granted by the government to the inventor to make, use, and sell the invention for a given period of time
- copyright—protects your literary or artistic work; allows you to sell, give away, or show your work (copyrights must be tangible and physical)
- trademark—name, mark, symbol, or motto, legally restricted to the use of the owner or manufacturer, that identifies your company and/or its product
- trade secret—information that you do not want known by your competition because your business would lose significant advantages
- What do I need to do to organize my business?
How you structure your business depends on your management style and your financial goals. Your business can be classified under the following business structures:
- sole proprietorship
- What are my rights under the Youth Labor Bill of Rights Act?
- The right to a fair and full day’s pay for a fair and full day’s work
- The right to a safe workplace and the right to file a complaint if the job is unsafe
- The right to overtime pay for every hour of work beyond 40 hours a week
- The right to equal employment opportunity without regard to race, color, religion, sex, national origin, or disability in an environment free of sexual and physical harassment
- What are some of the different types of jobs that are hazardous for youth/teens under age 18?
- Manufacturing or storing explosives
- Coal mining
- Logging and sawmilling
- Power-driven hoisting equipment
- Power-driven bakery machines
- Roofing operations
- Excavation operations
For additional listing of hazardous jobs, check out the Department of Labor’s Youth & Labor page.
- Where can I find out how some individuals started a successful business?
Listening to the story of how someone started a business and made it succeed can give you ideas about how to run your business. Read some success stories from Pennsylvania SBDC clients.
- Where can I meet other young people interested in business in my community?
Many national youth group associations have local chapters in your community where you can meet other teens with interests similar to yours and also participate in fun activities.