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BUSINESS STARTUP QUESTIONS AND ANSWERS Page 5

Progression of Events:

E. Answering Questions about Business Setup and Financing.

15. Do you need much money to start a business or good credit?

      No, you don’t need a lot of money or good credit to start a business, but you should consider both factors when planning your business:

•  Money

      The money required to start a business depends on many factors, including the type of business, equipment, office space, and marketing. For example, a small, home-based freelance business might cost as little as $3,000 to start, while a restaurant could cost $400,000 or more. However, starting a business with little or no money is possible if you have a plan and strategy and take advantage of free or low-cost resources.

      Other resources include seeking assistance from Grant Writers, Angel Investors, and Venture Capitalist Groups.

•  Credit

      A good credit score can help you qualify for a business loan, but it’s not the only factor that lenders consider. Lenders also look at your assets, cash flow, and financial statements. If you don’t have a business credit score, you can use your credit history to qualify for a small business loan, but you’ll need a solid personal credit history. You can build your business credit score by paying your bills on time and in full.

      Securing good business credit can be done in about three to five years after paying business-related bills, building business credit by using business-associated credit cards on time, and seeking assistance on a strategy to make excellent business credit from Dun & Brad.

16. What documents do you need to open a commercial business account at the bank of your choice?

      To open a business bank account, you’ll typically need to provide the following documents:

•  Identification

      Proof of identification for you and your business, such as a driver’s license, passport, or state-issued ID

•  Business Formation Documents

      Documents that show the legal formation of your business, such as a business license, articles of incorporation, or operating agreement

•  Tax ID

      The business’s tax ID number, such as an Employer Identification Number (EIN) or Social Security number

•  Business information

      The business’s name, address, and phone number, as well as the date it was established

•  Ownership agreements

      Agreements that show the names of all the business owners and partners

•  DBA Documents

      If your business has a doing business as (DBA) name, you may need to provide documents that show the other name

      You can open a business bank account online or at a local branch.

17. What are the pros and cons of financing your startup business utilizing bank loans?

      There are several pros and cons to financing a startup business with a bank loan, including:

Pros

•  Tax deductions: Interest paid on a business loan can be deducted from your gross income, reducing your overall tax liability.
•  Build business credit: Responsible use of a business loan can help build your business credit history and score, which can lead to more opportunities for growth.

Cons

•  High Interest Rates: Interest rates vary widely depending on your situation and may be high if your credit isn’t the best.
•  Credit Damage: Missing loan payments can damage your business and personal credit.
•  Costly: Business loan fees and interest rates can burden startups.
•  Repayment: You must repay the total amount borrowed, plus interest and possibly fees.
•  Secured Loans: If you choose a secured loan, your assets can be repossessed if you fail to meet the repayment terms.
•  Growth Projections: Most banks want to see a business’s growth projections before financing them, but small businesses often grow slowly.

18. What are the procedures for establishing good business credit?

      Here are some steps you can take to establish business credit:

•  Register your Business

      Registering your business with a business credit reporting agency establishes your business credit file and documents your payment history.

•  Open a Business Bank Account

      This helps establish a payment history with the bank, which can help you build credit.

•  Apply for a Business Credit Card

      Using a Business Credit Card responsibly can be a fast way to build credit.

•  Pay Bills on Time

      Paying bills on time helps establish vendor relationships and can lead to more favorable payment terms.

•  Keep your Credit Utilization Low

      You can lower your credit utilization score by paying down debt or requesting vendor credit line increases.

•  Get a DUNS Number

      A DUNS number provides access to a credit profile that can help you grow your business credit.

•  Monitor your Business Credit Score

      A clean credit report is essential for a strong business credit score and reflects your financial integrity.

•  Get an EIN

      An EIN is used to identify business entities, but you’ll need to use it to apply for business credit and make transactions to build your business credit.

19. What business professionals can help you secure financial assistance to start your business?

      Several types of business professionals and organizations can help you secure financial assistance to start a business, including:

•  Small Business Administration (SBA)

      The SBA provides resources, training, and specialists to help small businesses obtain funding. It also partners with other organizations, such as Small Business Development Centers (SBDCs), SCORE Business Mentors, Veterans Business Outreach Centers (VBOCs), and Women’s Business Centers (WBCs).

•  Online Lenders

      Online lenders can be a good option if you have little business experience or a low credit score.

•  Angel Investors

      Angel Investors are a vital funding source for startups but usually take an equity stake in the company.

•  Venture Capitalists

      Venture Capitalists invest in companies in exchange for an equity stake and often invest in industries with high growth potential.

•  Microlenders

      Microlenders offer tiny loans, typically less than $50,000, and may be provided by individuals, government organizations, or nonprofits.

•  Kiva

      Kiva offers small loans with 0% interest.

•  Accion Microfinance Bank

      Accion Microfinance Bank provides loans with an interest rate of 3% to 8%, plus additional costs.

      You can also consider local resources, such as the Temple Small Business Development Center, the Wharton Small Business Development Center, Entrepreneur Works, the Welcoming Center for New Pennsylvanians, and the Women’s Opportunities Resource Center.

20. How can you qualify for financial assistance to start your business or organization?

      There are several ways to qualify for financial assistance to start a business or organization, including:

•  Small Business Administration (SBA) Loans

      The SBA provides loan guarantees to local banks to help small businesses obtain funding. The SBA also funds firms owned by women, minorities, Native Americans, veterans, military spouses, and LGBTQ people.

•  Grants

      Some state and local governments and corporations offer grants to help entrepreneurs start their businesses. Grants.gov lists new grant opportunities and indicates whether startups are eligible. Other grants include:
Hello Alice, We are a grant platform that partners with companies like DoorDash and Progressive to offer grants to small businesses.

The Amplifier Grant: A seasonal grant from the activism organization Outrage that awards $5,000 to businesses working to make a difference in their community.

•  Personal Loans

      You can borrow money from family and friends, but writing the terms is essential to avoid hurt feelings.

•  Venture Capital

      You can find an investor, such as an individual investor or venture capital firm, to fund your business.

      Eligibility requirements for financial assistance vary by lender and program but generally include the business’s purpose, ownership structure, location, ability to repay, and whether it meets SBA size standards.

21a. What are business grants for your startup business or organization?

      Business grants can be a source of funding for startups and organizations, and they can come from various sources, including governments, corporations, foundations, and trusts. Some examples of business grants include:

•  Small Business Innovation Research (SBIR)

      A program that connects small businesses with federal research and development programs, providing grants or contracts for innovative ideas.

•  Amber Grant

      A $10,000 grant program for women-owned businesses in the U.S. that can be used for seed money and other business expenses.

•  FedEx Small Business Grant Contest

      An annual competition that awards grants to small business owners in various industries.

•  Rural Business Development Grant

      A competitive grant for small and emerging private businesses in rural areas, focusing on technical assistance and training.

•  Bizee Fresh Start Business Grant

      A $2,500 grant for new entrepreneurs includes free formation services, registered agent services, and tax consultation.

•  Program for Investors in Microentrepreneurs (PRIME)

      An SBA-run grant program for low-income entrepreneurs to start or expand their businesses.

•  SoGal Black Founder Startup Grant

      A grant program for Black business owners, focusing on multiracial, women, and nonbinary entrepreneurs with scalable startups.

      Unlike other types of business funding, grants don’t need to be paid back, and business owners don’t need to give up equity in exchange for the grant.

21b. What are the pros and cons of financing your startup with grants?

Pros of Business Grants

1. Free Money

      The number one advantage of business grants is that they are essentially free money. Grants need not be repaid, making them appealing for business endeavors. Not only that, but some grants available offer hefty amounts of money, depending on the applicant’s idea.

2. Accessible Info

      There is much information about where, how, when, and who to get grants from. This accessibility is essential because you’ll have to do much searching to find the right grant. No matter what industry you’re getting into, tons of information and resources are at your fingertips.

3. Waterfall Effect

      Once you’ve been awarded one grant, you’re more likely to receive others. Since someone has already given you this free money, other organizations will see you as a reliable candidate.

4. Gain Credibility

      Not only will getting one grant put you on the path to receiving another, but it will also increase your visibility. Winning some of the most coveted grants can provide benefits that outweigh the simple free-money advantage. Grants can also promote your business and idea, showing that your work is of notice.

Cons of Business Grants

1. Time-Consuming

      You’ll have to do a lot of research and fill out paperwork to apply for a grant. There are many, but they are all precise; you’ll have to find out which fits best with your venture. Once you find a grant, the proposal is the most important thing. If your idea or venture is creative, it won’t get you that grant without a convincing proposal.

2. Difficult to Receive

      Many people want the free money that grants provide. Around 2,700 grant proposals are submitted daily, but less than 200 will get funding. With thousands of small and online businesses, many are also working to receive free money. Be prepared for tough competition, but don’t let that inhibit you.

3. Uncertain Renewal

      One of the disadvantages of business grants is that they are only sometimes renewed. Suddenly, you may no longer receive funding and have to reapply for grants year after year. Ensure your business stays steady if your grant is not renewable.

4. Strings Attached

      Although grants are free, they still come with plenty of restrictions and conditions. It would be best if you were very specific about how you will use the money when you apply for a grant—once you get the money, you must stick to that plan. State and local programs will often have a contingency plan set up, which means extra work for you.

      Although it may seem like a tie, the pros outweigh the cons. The advantages and disadvantages of business grants still point to the idea of free money for your business. If you want to invest time in your idea, go for it. The pros and cons of business grants mean nothing if the belief in your idea isn’t solid.

21c. What does a Grant Writer provide about the pros and cons of financing your startup utilizing Business Support Services?

      A Grant Writer would explain that utilizing Business Support Services to access grants for your startup can offer significant advantages like free capital to fund your venture without needing to repay it, potentially boosting your credibility with a public endorsement and access to specialized funding opportunities tailored to your industry; however, the downsides include a competitive application process, strict reporting requirements, limitations on how the funds can be used, and the potential for significant time investment in researching and writing grant proposals.

      Key points a grant writer would highlight about the pros of Business Support Services for startup funding:

•  Non-debt Financing:

      Grants are essentially “free money,” as you do not need to repay the funds. This allows you to invest more capital into your business without debt.

•  Access to Specialized Funding:

      Business Support Services can identify and connect you with grants specifically designed for startups in your industry or geographic location, potentially providing funding for critical needs.

•  Credibility Boost:

      Securing a grant from a reputable organization can enhance your startup’s credibility and legitimacy, potentially attracting further investors or customers.

•  Market Validation:

      Winning a grant can indicate that your business concept is considered viable and has potential within the market.

• Funding for Specific Projects:

      Grants can fund specific projects like research and development, marketing campaigns, or new product launches.

      Key points a grant writer would highlight about the cons of Business Support Services for startup funding:

•  Highly Competitive:

      Many startups apply for the same grants, making the application process challenging and without guaranteeing success.

•  Time Commitment:

      Researching and writing grant proposals can be time-consuming, requiring significant effort from your team.

•  Strict Reporting Requirements:

      Once awarded, grants often come with detailed reporting requirements, demanding ongoing administrative work to maintain compliance.

•  Limited Funding Amount:

      Grants may not provide enough funding to cover all your startup needs, so you may need to seek additional funding sources.

•  Restrictions on Usage:

      Grants may have specific guidelines on how the funds can be used, limiting your flexibility in spending.

21d. What is seed funding for startup businesses?

      Seed funding, also known as seed capital or seed money, is the first round of capital that a startup raises to start a business or project. Compared to other sources of startup funding, it’s usually a relatively small amount, typically in the tens to hundreds of thousands of dollars.

Seed Funding

      The purpose is to help a business cover its initial operating expenses, such as equipment, wages, rent, and utilities.

      Source Founders, friends and family, angel investors, and early-stage venture capital firms.

      Investors provide capital in exchange for a stake in the company.

Benefits: It helps a business move from an idea to a tangible product or business and demonstrates its potential to attract further investment.

      Risks Investors take on significant risks when investing in an unproven startup.

      Seed funding is a startup’s first official equity funding stage before proceeding to subsequent rounds of funding, such as series A, B, and C. Some companies never move beyond seed funding.

      A Simple Agreement for Future Equity (SAFE) is a financing structure for early-stage funding. It’s similar to convertible debt but doesn’t include interest or a maturity date.

21e. What are the pros and cons of getting financial assistance to start your business or organization and get startup money from an Angel Investor?

      Pros and Cons of Using an Angel Investor to Fund a Startup

•  Pro: An Angel Investor is willing to take a risk.
•  Con: An Angel Investor Might Set the Bar Higher.
•  Pro: Money is not a Loan.
•  Con: There will be Strings Attached.
•  Pro: Odds of Success Rise.
•  Con: You Aren’t in Full Control.

21f. What are the pros and cons of getting financial assistance to start your business or organization with startup money from a Venture Capitalist Group of Investors?

      Venture Capital (VC) can be an excellent way to get funding for a startup, but it also has some drawbacks:

Pros

•  Funding: VC can provide much money, sometimes more than bank loans.
•  Mentorship: VCs can offer guidance from experienced professionals in the industry.
•  Networking: VCs can help you build connections in the business community.
•  Support: VCs can help with legal, tax, and personnel matters.

Cons

•  Equity: You may need to give up some or all of your ownership in the company.
•  Control: VCs may want to be involved in how you run your business.
•  Pressure: VCs may expect you to provide regular updates and financial reports.
•  Returns: VCs expect a return on their investment, which can lead to misaligned interests.
•  Process: Securing VC funding can be time-consuming and complex.

Dilution

      Founders may own a smaller percentage of their company after the investment.

Growth

      You may be pushed to grow too fast.

      Alternatives to VC include angel investors, corporate venturing, incubators, and accelerators.

21g. How and why would an entrepreneur want to attract the attention of an Angel Investor or a Venture Capitalist Group of Investors?

      Consider the type and amount of support and capital your startup requires. If you need a smaller capital infusion and value mentorship and industry connections, angel investors might be the right choice. Venture capital is more appropriate for extensive capital needs, structured growth, and market expansion.

22a. Why do many Business Startups fail in the first year?

      Startups can fail for a variety of reasons, including:

•  Business Model Failure

      Many startups fail because they can’t implement a successful business model. Business owners often forget that keeping expenses down is essential, especially if they don’t have a stable revenue stream.

•  Poor Marketing

      Startups that ignore marketing may need to attract more customers to generate a positive cash flow.

•  Burnout

      Entrepreneurs often get overworked and exhausted, losing their work-life balance.

•  Cash Flow Issues

      Poor cash flow is a leading reason for startup failure.

•  A Weak Team

      Weak teams may not be able to implement plans and growth strategies efficiently.

•  Lack of a go-to-market strategy

      Many startups focus on one aspect of the business, and marketing and sales become an afterthought.

•  Misreading Market Demand

      According to Insights, 42% of startups fail due to misreading market demand.

•  Running Out of Funding

      29% of startups fail due to running out of funding and personal money.

      Each startup’s circumstances are unique, and a combination of factors could lead to failure.

22b. What can you do to avoid business startup failure?

      There are many things you can do to prevent business startup failure, including:

•  Market Research

      Understand the industry and target market to identify risks and opportunities. This can help you develop a business plan that accounts for them.

•  Write a Business Plan

      A business plan can help you reduce the risk of failure and bring you closer to your goals.

•  Build a Great Team

      Hire a team of determined, skillful, and ethical people passionate about building your startup.

•  Manage your Finances

      Create budgets and allocate resources efficiently to ensure you have enough money for daily operations.

•  Ensure Customer Satisfaction

      Improve your customer service to retain loyal customers.

•  Contracts

      Contracts are essential for the smooth functioning of your business and can provide recourse if work is not fulfilled.

22c. What is budgeting and forecasting, and why is it important?

      A business budget is a spending plan based on income and expenses. It identifies available capital, estimates spending, and helps predict revenue. A budget can help you plan your business activities and be a yardstick for setting financial goals.

      Many businesses fail in the first year because they don’t set up a budget and outspend their cash flow.

Note: A business or organization can function briefly with a negative cash flow. Spending more money than the business makes usually causes businesses to fail in the first year.

      It is best to keep a record and monitor your business spending habits. Creating and maintaining a running budget forces you to examine your spending habits closely. When reviewing your expenses, you may notice you’re spending money on things you don’t need to operate your business or organization. Budgeting allows you to rethink your spending habits and refocus on your financial goals.

      Looking at your expenses, you may see that you spent more money than is currently flowing while running your business. By reviewing your budget, you can make effective changes as a result. Suppose you see you overspending target amounts set in your budget for such discretionary items. In that case, you may adjust how much you commit to business operation expenses.

22d. Why is a Budget Important?

      A budget helps create financial stability. By tracking expenses and following a plan, a budget makes it easier to pay bills on time, build an emergency fund, and save for significant costs such as a car or home. A budget puts a person on a firmer financial footing for both the day-to-day and the long term.

22e. What is business forecasting?

      Business forecasting uses historical data and other factors to predict future business conditions and outcomes. It’s an essential business tool for strategic decisions, growth planning, and risk management.

      Here are some things to know about business forecasting:

•  Types of Forecasting

      There are two main types of business forecasting: qualitative and quantitative. Qualitative forecasting uses observations and opinions to make short-term predictions, while quantitative forecasting uses statistical analysis to make long-term projections.

•  What’s Forecasted

      Businesses can forecast many aspects of their operations, including sales, costs, cash flow, profit margins, market share, and customer demand.

•  How it’s used

      Business forecasting can help with budgeting, planning, and estimating future growth. It can also help identify opportunities and potential problems before they become a crisis.

•  How it’s compared

      Businesses can compare their forecasts to actual results to evaluate their performance and make improvements.

22f. What is an emergency fund?

      An emergency fund is three to six months’ worth of business operating expenses in case of an unexpected event, such as the COVID-19 virus.

22g. What are some key reasons to have a budget?

      Depending on the company or organization, there are many reasons to have a budget. A budget can often help build financial independence and freedom. It can also set you on the right path to achieving your financial goals, spending within your means, saving and building an emergency fund, and analyzing your spending habits.

The Bottom Line

      A budget is a spending plan considering expected income and expenses for a specified period. It can bring your business or organization one step closer to financial security. Having and sticking to a budget can keep your spending in check, ensure that your savings for emergencies and longer-term goals, such as business growth, are many years ahead, and help your business stay consistent with growth and not fail in the first few years as many companies or organization do.

23. Why do startup businesses need a company website?

      A website is essential for a startup business because it can help with:

•  Credibility

      A well-designed website can help your business stand out from competitors and build credibility.

•  Customer Support

      A customer support page on your website can help customers find answers to questions, report issues, and get help.

•  Marketing

      A website can be a cost-effective platform for marketing your products or services.

•  Audience Interaction

      A website can help you connect with customers and prospects and produce content for your audience.

•  Analytics

•  Website analytics can help you understand how people interact with your site, which can help you optimize your website and make business decisions.

•  Branding

      A website can help you build your brand and escalate your services to customers.

• Blogging

      Blogging can be a low-cost way to expand your target audience.

24. What business-related startup question would you like answered?