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Category Archives: Announcement
Governor McAuliffe announced that June will be designated as Virginia’s Business Appreciation Month to ensure that the history and growth of Virginia businesses are recognized across the Commonwealth. There is a crucial correlation between strong business and strong communities. Vibrant and strong communities produce strong businesses, and strong businesses make communities strong and vibrant. To view the governor’s proclamation, click here.
This seminar is (1) a must attend event for Maryland, Virginia, District of Columbia and Pennsylvania area businesses, especially small and medium-sized enterprises, interested in entering, growing, and succeeding in global markets; (2) a major networking occasions for financial professionals seeking to expand their client base; (3) a great learning opportunity for students interested in international trade and global businesses; and (4) offered in support of the advancement of U.S. Hispanic and other minority-owned businesses in global markets.
For more information and to register click here.
Registration is now open for Virginia Small Business Week Awards luncheon scheduled for Friday, June 13 from 11am to 2pm at the Richmond Omni. Businesses may register for a table at either the Gold or Silver level. Individuals may register for $45 (plus processing fee). We are proud to have Ms. Lillian Lincoln Lambert, the first African American woman to earn a Harvard MBA and Maryland's 1981 SBPOY, as the mistress of ceremonies.
Click here for more information about the event and registration.
The Richmond District Office has extended the deadline for submitting district awards to February 28, 2014.
Submission for the following categories are still wanted:
Family-Owned Business of the Year
Financial Services Champion of the Year
Minority Small Business Champion of the Year
Veteran Small Business Champion of the Year
Women in Business Champion of the Year
Nominations can be sent to:
SBA Richmond District Office
400 N. 8th Street, Suite 1150
Richmond, VA 23226
(804) 771-2400 x128
by email to:
Assistant Secretary of State for Western Hemisphere Affairs Roberta Jacobson and Ambassador of Mexico to the United States Eduardo Medina Mora will deliver remarks and witness the signing of a memorandum of understanding between George Mason University and the Autonomous University of Nuevo León (UANL), February 6, 2014 at 3:30 p.m. in the Delegates Lounge at the U.S. Department of State. As leading members of Small Business Development Center (SBDC) networks, George Mason’s Mason Enterprise Center and UANL are establishing the first International Sister Center partnership under the Small Business Network of the Americas (SBNA).
As Sister Centers, George Mason and UANL will cooperate on soft landing programs for small businesses looking to establish a presence in the vicinity of Monterrey, Mexico or the Commonwealth of Virginia. George Mason will be represented by the Vice President for Global and International Strategies, Dr. Anne Schiller; UANL will be represented by Vice President for Sustainable Development, Dr. Sergio Fernandez Delgadillo. The Sister Centers will also generally support activities that promote bilateral trade, share best practices in entrepreneurial assistance, carry out faculty and student exchanges, and explore other possibilities for collaboration between SBDCs hosted by each university.
Launched in 2012 at the Sixth Summit of the Americas, SBNA is President Obama’s signature initiative to promote entrepreneurship, innovation, and small business growth in the Western Hemisphere. For more information on SBNA, see www.youtube.com/watch?v=DSFDJMbx9FE. For inquiries on SBNA, please contact SBNA@state.gov.
The U.S. Small Business Administration’s Richmond District office is accepting nominations for its 2014 Small Business Week awards luncheon scheduled for May 2014. The RDO will accept nominations up to February 7, 2014.
Anyone advocating small business including self-nominators may submit nomination packets. Nominations can be mailed, hand-delivered directly to the Richmond District Office or submitted online through a registration process at http://www.sba.gov/about-offices-content/2/3155/news/772001/.
The Richmond District Office will award the following categories:
• Small Business Person of the Year
• Small Business Exporter of the Year
• Family-Owned Business of the Year
• Minority Small Business of the Year
• Financial Services Champion
• Veteran’s Small Business Champion
• Women in Business Champion
Winners will receive their awards at the annual Virginia Small Business Week awards luncheon scheduled for the Richmond area in May 2014. Additional tickets will be available for purchase by supporters of small business, the business community and the general public.
Nomination materials and forms can be found at http://www.sba.gov/about-offices-content/2/3155/news/772001/ or requested through a Richmond District Office SBA representative.
Winners of each category will be submitted for national awards of the same category and will be invited to attend events during the 2014 National Small Business Week in Washington, D.C.
Now that you’ve chosen or possibly started down your entrepreneurial path, the next step is to determine how to finance the start or the ongoing operations of your business. But first, there are certain things you should think about.
Questions to ask yourself before seeking Financial Assistance
1. Do you need more capital or can you manage existing cash flow more effectively?
2. How do you define your need? Do you need money to expand, as a cushion against risk, to manage cash flow, or what?
3. How urgent is your need? You can obtain the best terms when you anticipate your needs rather than looking for money under pressure.
4. How great are your risks? All businesses carry risks, and the degree of risk will affect cost and available financing alternatives.
5. In what state of development is the business? Needs are most critical during transitional stages.
6. For what purposes will the capital be used? Any lender will require that capital requested is for very specific needs.
7. What is the state of your industry? Depressed, stable, or growth conditions require different approaches to money needs and sources. Businesses that prosper while others are in decline will often receive better funding terms.
8. Is your business seasonal or cyclical? Seasonal needs for financing generally are short term. Loans advanced for cyclical industries such as construction are designed to support a business through depressed periods.
9. How strong is your management team? Management is the most important element assessed by money sources.
10. Perhaps most importantly, how does your need for financing mesh with your business plan? If you don’t have a business plan, make writing one your first priority. Most capital sources (especially if you are seeking debt financing) will want to see your business plan for the start-up and growth of your business.
Not All Money Is the Same
There are two types of financing: equity and debt. When looking for money, you must consider your company’s debt-to-equity ratio—the relation between dollars you’ve borrowed and dollars you’ve invested in your business. The more money that owners have invested in their business, the easier it is to attract financing.
If your firm has a high ratio of equity to debt, you should probably seek debt financing. However, if your company has a high proportion of debt to equity, experts advise that you should increase your ownership capital (equity investment) for additional funds. That way you won’t be over-leveraged to the point of jeopardizing your company’s survival.
Equity financing is when the money is in the form of an investment that buys shares in the company. Most small or growth-stage businesses use limited equity financing. As with debt financing, additional equity often comes from non-professional investors such as friends, relatives, employees, customers, or industry colleagues. However, the most common source of professional equity funding comes from angel investors and/or venture capitalists. These are institutional risk takers and may be groups of wealthy individuals, government-assisted sources, or major financial institutions. Most specialize in one or a few closely related industries. The high-tech industry of California’s Silicon Valley is a well-known example of capitalist investing.
Venture capitalists are often seen as deep-pocketed financial gurus looking for start-ups in which to invest their money, but they most often prefer three-to-five-year old companies with the potential to become major regional or national concerns and return higher-than-average profits to their shareholders. Venture capitalists may scrutinize thousands of potential investments annually, but only invest in a handful. The possibility of a public stock offering is critical to venture capitalists. Quality management, a competitive or innovative advantage, and industry growth are also major concerns. You’ll also want to know what kind of return they are looking at. For example, there have been periods when venture capitalists are looking for an ROI (return on investment) of 5 times their original investment within three years.
Different venture capitalists have different approaches to management of the business in which they invest. They generally prefer to influence a business passively, but will react when a business does not perform as expected and may insist on changes in management or strategy. Relinquishing some of the decision-making and some of the potential for profits are a main disadvantage of equity financing.
Debt financing is when the money is in the form of a loan. There are many sources for debt financing: banks, savings and loans, commercial finance companies, and the U.S. Small Business Administration (SBA) are the most common. State and local governments have developed many programs in recent years to encourage the growth of small businesses in recognition of their positive effects on the economy. Family members, friends, and former associates are all potential sources, especially when capital requirements are smaller.
Traditionally, banks have been the major source of small business funding. Their principal role has been as a short-term lender offering demand loans, seasonal lines of credit, and single-purpose loans for machinery and equipment. Banks generally have been reluctant to offer long-term loans to small firms. The SBA-guaranteed lending program encourages banks and non-bank lenders to make long-term loans to small firms by reducing their risk and leveraging the funds they have available. The SBA’s programs have been an integral part of the success stories of thousands of firms nationally.
In addition to equity considerations, lenders commonly require the borrower’s personal guarantees in case of default. This ensures that the borrower has a sufficient personal interest at stake to give paramount attention to the business, in addition to the bank being able to take possession of the collateral in case of default. For most borrowers this is a burden, but also a necessity.
Type of Financing
Which type of financing is best for you? If you are just starting off, probably the most important factor is the type of business you are starting. For example, if you are considering purchasing a franchise, that has a proven business model, then most likely you will want to pursue debt financing. However, if your goal is to create a new technology startup, then your venture is very risky and likely will require some sort of equity financing. A good place to start is your local SBA, who can answer many of your questions and help you determine what’s best for your specific venture.
The SBA provides a number of financial assistance programs for small businesses. They have been specifically designed to meet a business’s key financing needs including the need for debt financing (loans), equity financing (investment/seed money), and surety bonds. SBA does not provide grant funds to finance small businesses. SBA addresses these needs through the following three broad finance programs, but before reviewing these programs you will benefit from SBA’s online course, Finance Primer http://app1.sba.gov/training/sbafp.
Debt Financing – SBA’s Loan Programs
SBA does not make loans directly to borrowers; it works with thousands of lenders and other intermediaries, who will make the loan if the SBA guarantees that the loan will be repaid. However, you might not want an SBA-guaranteed loan, if you have access to other financing on reasonable terms. Additional information on SBA loans, including credit and eligibility requirements, how to apply, etc., is available at http://www.sba.gov/content/how-apply-sba-loan.
SBIC Financing – SBA’s Small Business Investment Company Program
SBICs are privately owned and managed investment funds, licensed and regulated by the SBA. SBICs are similar to venture capital, private equity and private debt funds in terms of how they operate and their ultimate objective to generate high returns for their investors. However, SBICs limit their investments to qualified small business concerns as defined by SBA regulations. Additional information is available at http://www.sba.gov/inv.
Surety Bonds – SBA’s Bonding Programs
The Surety Bond Guarantee (SBG) Program was developed to provide small and minority contractors with contracting opportunities for which they would not otherwise bid. SBA can guarantee bonds for contracts up to $2 million, covering bid, performance and payment bonds for small and emerging contractors who cannot obtain surety bonds through regular commercial channels. SBA’s guarantee gives sureties an incentive to provide bonding for eligible contractors, which strengthen a contractor’s ability to obtain bonding and greater access to contracting opportunities. A surety guarantee, between a surety and the SBA, provides that SBA will assume a predetermined percentage of loss in the event the contractor should breach the terms of the contract. More information is at http://www.sba.gov/category/navigation-structure/loans-grants/bonds/surety-bonds.
In the rest of this series, we will take a deeper look at some of the factors that you need to consider when applying for a loan.
An important step in the small business startup process is deciding whether or not to go into business at all. Each year, thousands of potential entrepreneurs are faced with this difficult decision; because of the risk and work involved in starting a new business, many new entrepreneurs choose franchising as an alternative to starting a new, independent business from scratch.
One of the biggest mistakes you can make is to hurry into business, so it’s important to understand your reasons for going into business, and determine if owning a business is right for you.
If you are concerned about the risk involved in a new independent business venture, then franchising may be the best business option for you. But remember that hard work, dedication, and sacrifice are essential to the success of any business venture, including franchising.
**Veteran Tip—Military Experience and Veterans Advantage for Franchising
Case for Veterans - Mark Siebert, CEO of franchise consulting firm IFranchise Group says, "For a franchisor, a veteran is an ideal franchisee," They're used to systems and structure, they're almost universally hard-working and they're willing to follow the rules."
Veterans Advantage - There are hundreds if not thousands of franchises that offer some sort of large discount (sometimes $0 startup costs!) to veterans. A good place to learn a little more and see what opportunities are available is the International Franchise Association’s VetFran website, www.vetfran.com. You can also check franchise opportunities at the Veterans Business Service website http://www.veteransbusinessservices.us/franchise/. They have an extensive list of franchisors that are specifically looking to work with veterans.
What is Franchising?
A franchise is a legal and commercial relationship between the owner of a trademark, service mark, trade name, or advertising symbol and an individual or group wishing to use that identification in a business. The franchise governs the method of conducting business between the two parties. Generally, a franchisee sells goods or services supplied by the franchiser or that meet the franchiser’s quality standards.
Franchising is based on mutual trust between the franchiser and franchisee. The franchiser provides the business expertise (marketing plans, management guidance, financing assistance, site location, training, etc.) that otherwise would not be available to the franchisee. The franchisee brings the entrepreneurial spirit and drive necessary to make the franchise a success.
There are primarily two forms of franchising:
• Product/trade name franchising
• Business format franchising
In the simplest form, a franchiser owns the right to the name or trademark and “rents” that right to a franchisee. This is known as product/trade name franchising. The more complex form, business format franchising, involves a broader ongoing relationship between the two parties. Business format franchises often provide a full range of services, including site selection, training, product supply, marketing plans, and even assistance in obtaining financing.
Shopping at a Franchise Exposition
Attending a franchise exposition allows you to view and compare a variety of franchise possibilities. Keep in mind that exhibitors at the exposition primarily want to sell their franchise systems. Be cautious of salespersons who are interested in selling a franchise that you are not interested in.
Before you attend, research what type of franchise best suits your investment limitations, experience, and goals. When you attend, comparison shop for the opportunity that best suits your needs and ask questions.
Know how much you can invest: An exhibitor may tell you how much you can afford to invest or that you can’t afford to pass up this opportunity. Before beginning to explore investment options, consider the amount you feel comfortable investing and the maximum amount you can afford.
Know what type of business is right for you: An exhibitor may attempt to convince you that an opportunity is perfect for you. Only you can make that determination. Consider the industry that interests you before selecting a specific franchise system. Ask yourself the following questions:
• Have you considered working in that industry before?
• Can you see yourself engaged in that line of work for the next twenty years?
• Do you have the necessary background or skills?
If the industry does not appeal to you or you are not suited to work in that industry, do not allow an exhibitor to convince you otherwise. Spend your time focusing on those industries that offer a more realistic opportunity.
Comparison shop: Visit several franchise exhibitors engaged in the type of industry that appeals to you. Listen to the exhibitors’ presentations and discussions with other interested consumers. Get answers to the following questions:
• How long has the franchiser been in business?
• How many franchised outlets currently exist?
• Where are they located? Do they have exclusivity in their geographical area?
• How much is the initial franchise fee and any additional startup costs? Are there any continuing royalty payments? How much?
• What management, technical, and ongoing assistance does the franchiser offer?
• What controls does the franchiser impose?
Exhibitors may offer you prizes, free samples, or free dinners if you attend a promotional meeting later that day or over the next week to discuss the franchise in greater detail. Do not feel compelled to attend; rather, consider these meetings as one way to acquire more information and ask additional questions. Be prepared to walk away from any promotion if the franchise does not suit your needs.
Get substantiation for any earnings representations: Some franchisers may tell you how much you can earn if you invest in their franchise system or how current franchisees in their system are performing. Be careful. The FTC requires that franchisers who make such claims provide you with written substantiation. This is explained in more detail in the section “Investigating Franchise Offers.” Make sure you ask for and obtain written substantiation for any income projections or income or profit claims. If the franchiser does not have the required substantiation or refuses to provide it to you, consider its claims to be suspect.
Take notes: It may be difficult to remember each franchise exhibit. Bring a pad and pen to take notes. Get promotional literature that you can review. Take the exhibitors’ business cards so you can contact them later with any additional questions.
Avoid high pressure sales tactics: You may be told that the franchiser’s offering is limited, that there is only one territory left, or that this is a one-time reduced franchise sales price. Do not feel pressured to make any commitment. Legitimate franchisers expect you to comparison shop and investigate their offering, because they want to have a franchisee who asks the right questions and who will succeed. A good deal today should be available tomorrow.
Investigating Franchise Offers
Before investing in any franchise system, be sure to get a copy of the franchiser's disclosure document. Sometimes this document is called a Franchise Offering Circular. Under the FTC’s Franchise Rule, you must receive the document at least 10 business days before you are asked to sign any contract or pay any money to the franchiser. You should read the entire disclosure document; make sure you understand all of the provisions. The following outline will help you to understand key provisions of typical disclosure document as well as ask questions about the disclosures. Get a clarification or answer to your concerns before you invest.
Business background: The disclosure document identifies the executives of the franchise system and describes their prior experience. Consider not only their general business background, but their experience in managing a franchise system. Also consider how long they have been with the company. Investing with an inexperienced franchiser may be riskier than investing with an experienced one.
Litigation history: The disclosure document helps you assess the background of the franchiser and its executives by requiring the disclosure of prior litigation. The disclosure document tells you if the franchiser or any of its executive officers have been convicted of felonies involving, for example, fraud, any violation of franchise law, unfair or deceptive practices law, or are subject to any state or federal injunctions involving similar misconduct. It also will tell you if the franchiser or any of its executives have been held liable or settled a civil action involving the franchise relationship. A number of claims against the franchiser may indicate that it has not performed according to its agreements, or, at the very least, that franchisees have been dissatisfied with the franchiser's performance. Be aware that some franchisers may try to conceal an executive’s litigation history by removing the individual’s name from their disclosure documents.
Bankruptcy: The disclosure document tells you if the franchiser or any of its executives have recently been involved in a bankruptcy. This will help you to assess the franchiser's financial stability and general business acumen, as well as predict if the company is financially capable of delivering promised support services.
Costs: The disclosure document tells you the costs involved to start one of the company’s franchises. It will describe any initial deposit or franchise fee, which may be nonrefundable, and costs for initial inventory, signs, equipment, leases, or rentals. Be aware that there may be other undisclosed costs.
The following checklist will help you ask about potential costs to you as a franchisee.
√ Continuing royalty payments
√ Advertising payments, both to local and national advertising funds
√ Grand opening or other initial business promotions
√ Business or operating licenses
√ Product or service supply costs
√ Real estate and leasehold improvements
√ Discretionary equipment such as a computer system or business alarm system
√ Legal fees
√ Financial and accounting advice
√ Compliance with local ordinances, such as zoning, waste removal, and fire and other safety codes
√ Health insurance
√ Employee salaries and benefits
It may take several months or longer to get your business started. Consider in your total cost estimate operating expenses for the first year and personal living expenses for up to two years. Compare your estimates with what other franchisees have paid and competing franchise systems; perhaps you can get a better deal with another franchiser. An accountant can help you to evaluate this information.
Restrictions: Your franchiser may restrict how you operate your outlet. The disclosure document tells you if the franchiser limits:
• The supplier of goods from whom you may purchase
• The goods or services you may offer for sale
• The customers to whom you can offer goods or services
• The territory in which you can sell goods or services
• Understand that restrictions such as these may significantly limit your ability to exercise your own business judgment in operating your outlet
Terminations: The disclosure document tells you the conditions under which the franchiser may terminate your franchise and your obligations to the franchiser after termination. It also tells you the conditions under which you can renew, sell, or assign your franchise to other parties.
Training and other assistance: The disclosure document will explain the franchiser’s training and assistance program. Make sure you understand the level of training offered. The following checklist will help you ask the right questions.
√ How many employees are eligible for training?
√ Can new employees receive training and, if so, is there any additional cost?
√ How long are the training sessions?
√ How much time is spent on technical training, business management training, and marketing?
√ Who teaches the training courses and what are their qualifications?
√ What type of ongoing training does the company offer and at what cost?
√ To whom can you speak if problems arise?
√ How many support personnel are assigned to your area?
√ How many franchisees will the support personnel service?
√ Will someone be available to come to your franchised outlet to provide more individual assistance?
The level of training you need depends on your own business experience and knowledge of the franchiser's goods and services. Keep in mind that a primary reason for investing in the franchise, as opposed to starting your own business, is training and assistance. If you have doubts that the training might be insufficient to handle day-to-day business operations, consider another franchise opportunity more suited to your background.
Advertising: You often must contribute a percentage of your income to an advertising fund even if you disagree with how these funds are used. The disclosure document provides information on advertising costs. The following checklist will help you assess whether the franchiser’s advertising will benefit you.
√ How much of the advertising fund is spent on administrative costs?
√ Are there other expenses paid from the advertising fund?
√ Do franchisees have any control over how the advertising dollars are spent?
√ What advertising promotions has the company already engaged in?
√ What advertising developments are expected in the near future?
√ How much of the fund is spent on national advertising?
√ How much of the fund is spent on advertising in your area?
√ How much of the fund is spent on selling more franchises?
√ Do all franchisees contribute equally to the advertising fund?
√ Do you need the franchiser’s consent to conduct your own advertising?
√ Are there rebates or advertising contribution discounts if you conduct your own advertising?
√ Does the franchiser receive any commissions or rebates when it places advertisements? Do franchisees benefit from such commissions or rebates, or does the franchiser profit from them?
Current and former franchisees: The disclosure document provides important information about current and former franchisees. Determine how many franchises are currently operating; a large number of franchisees in your area may mean increased competition. Pay attention to the number of terminated franchisees; a large number of terminated, canceled, or non-renewed franchises may indicate problems. Be aware that some companies may try to conceal the number of failed franchisees by repurchasing failed outlets and then listing them as company-owned outlets. If you buy an existing outlet, ask the franchiser how many owners operated that outlet and over what period of time. A number of different owners over a short period of time may indicate that the location is not a profitable one or that the franchiser has not supported that outlet with promised services.
The disclosure document gives you the names and addresses of current franchisees who have left the system within the last year. Speaking with current and former franchisees is probably the most reliable way to verify the franchiser’s claims. Visit or phone as many of the current and former franchisees as possible; ask them about their experiences. See for yourself the volume and type of business being done.
The following checklist will help you ask current and former franchisees such questions as:
√ How long has the franchisee operated the franchise?
√ Where is the franchise located?
√ What was their total investment?
√ Were there any hidden or unexpected costs?
√ How long did it take them to cover operating costs and earn a reasonable income?
√ Are they satisfied with the cost, delivery, and quality of the goods or services sold?
√ What were their backgrounds prior to becoming a franchisee?
√ Was the franchiser’s training adequate?
√ What ongoing assistance does the franchiser provide?
√ Are they satisfied with the franchiser’s advertising program?
√ Does the franchiser fulfill its contractual obligations?
√ Would the franchisee invest in another outlet?
√ Would the franchisee recommend the investment to someone with your goals, income requirements, and background?
Be aware that some franchisers may give you a separate reference list of selected franchisees to contact. Those on the list may be individuals who are paid by the franchiser to give a good opinion of the company.
Earnings potential: you may want to know how much money you can make if you invest in a particular franchise system. Be careful; earnings projections can be misleading. Insist upon written substantiation for any earnings projections or suggestions about your potential income or sales.
Franchisers are not required to make earnings claims, but if they do, the FTC’s Franchise Rule requires franchisers to have a reasonable basis for these claims and to provide you with a document that substantiates them. This substantiation includes the bases and assumptions upon which these claims are made. Make sure you get and review the earnings claims document. Consider the following in reviewing any earnings claims.
• Sample size: A franchiser may claim that franchisees in its system earned, for example, $50,000 last year. This claim may be deceptive, however, if only a few franchisees earned that income and it does not represent the typical earnings of franchisees. Ask how many franchisees were included in the number.
• Average incomes: A franchiser may claim that the franchisees in its system earn an average income of, for example, $75,000 a year. Average figures like this tell you very little about how each individual franchisee performs. Remember, a few very successful franchisees can inflate the average. An average figure may make the overall franchise system look more successful than it actually is.
• Gross sales: Some franchisers provide figures for the gross sales revenues of their franchisees. These figures, however, do not tell you anything about the franchisees' actual costs or profits. An outlet with a high gross sales revenue on paper actually may be losing money because of high overhead, rent, and other expenses.
• Net profits: Franchisers often do not have data on the net profits of their franchisees. If you do receive net profit statements, ask whether they provide information about company-owned outlets. Company-owned outlets might have lower costs because they can buy equipment, inventory, and other items in larger quantities, or may own, rather than lease, their property.
• Geographic relevance: Earnings may vary in different parts of the country. An ice cream store franchise in a southern state, such as Florida, may expect to earn more income than a similar franchise in a northern state, such as Minnesota. If you hear that a franchisee earned a particular income, ask where that franchisee is located.
• Franchisee's background: Keep in mind that franchisees have varying levels of skills and educational backgrounds. Franchisees with advanced technical or business backgrounds can succeed in instances where more typical franchisees cannot. The success of some franchisees is no guarantee that you will be equally successful.
Financial history: The disclosure document provides you with important information about the company’s financial status, including audited financial statements. Be aware that investing in a financially unstable franchiser is a significant risk; the company may go out of business or into bankruptcy after you have invested your money.
Hire a lawyer or an accountant to review the franchiser’s financial statements. Do not attempt to extract this important information from the disclosure document unless you have considerable background in these matters. Your lawyer or accountant can help you understand the following.
• Does the franchiser have steady growth?
• Does the franchiser have a growth plan?
• Does the franchiser make most of its income from the sale of franchises or from continuing royalties?
• Does the franchiser devote sufficient funds to support its franchise system?
The Big Question
No matter what, owning a business doesn’t exactly mean you are your own boss, because you will always have to answer to your customers. However, with a franchise you will also have to answer to the franchisor and likely give them a percentage of the profits you worked so hard for. So the big or obvious question you need to ask is: Do you want that type of structured environment, and do you mind answering to someone other than your customers?
When it’s all said and done, owning a franchise is a great way to learn how to run a business. Furthermore, just because you start with a franchise, doesn’t mean you can’t choose a different entrepreneurial path down the road. Only the next time, you will have a much better understanding of business operations, financing, marketing, etc.
In a previous blog post, we talkedabout some of the different entrepreneurial paths one could choose. Today, we are going to give you a brief overview of Government Contracting and whether this path might suit you. As we explore the different paths we will start with some of the reasons why a particular path might suit you in regards to your military experience and the advantages that come with being a veteran.
**Veteran Tip—Military Experience and Veterans Advantage for Federal Contracting
Case for Veterans -As a veteran you have already worked for or with many federal contractors. You understand how the government works and likely have the skills to build a profitable business based on the needs of the government.
Veterans Benefits - There are many federal agencies that want to contract their work to veterans, but finding and verifying these veteran-owned businesses can be difficult. To help solve this challenge veteran business owners can take advantage of the VA’s “Vets First Contracting Program” (http://www.va.gov/osdbu/verification/index.asp). Along with training on how to work with the federal government, this program helps Service Disabled Veteran-Owned Small Businesses (SDVOSB) and Veteran-Owned Small Businesses (VOSB) become “verified” as a veteran-owned business. As a verified SDVOSB/VOSB your business can be listed in the VA’s Vendor Information pages, called VETBiz/VIP (https://www.vip.vetbiz.gov/), a database that federal agencies and private businesses use to find and work with veteran-owned businesses.
**Special Note: Verification is not a simple process. In 2012, approximately 58% of applications have been denied, mostly because of misunderstanding about the verification process. If you choose this path, be sure to check out the Verification Assistance Program at http://www.va.gov/osdbu/verification/assistance/.
If you are brand new to the concept of government contracting, then I suggest you check out these two posts written by Bill Gormely, the president and CEO of Washington Management Group:
• "Your First Five Steps in Government Contracting": http://www.sba.gov/community/blogs/guest-blogs/industry-word/your-first-five-steps-government-contracting
• "Government Contracting: Explaining the Process in 5 Steps": http://www.sba.gov/community/blogs/guest-blogs/industry-word/government-contracting-explaining-process-5-steps
As a veteran, you probably remember the logistical nightmare of trying to get a project contracted out while serving in the military. Most likely that experience has left you with the thought that doing business with the government is too complicated. However, as a veteran, there are many advantages to becoming a government contractor.To get started, visit the VA’s Veteran Entrepreneur Portal at http://www.va.gov/osdbu/veteran/vep.asp.
The rest of this blog will cover a high-level view of government contracting to help you decide if it's right for you. In future posts we will dive into more detail, but as a veteran, there are plenty of special training opportunities you can take advantage of.
Myths about Government Contracting
Government contracts can provide significant revenue. But some think it is too hard to accomplish, so let's first dispel some of the biggest myths about doing business with the government:
Myth: Doing business with the government is too complicated, involves too much red tape, and it takes forever to get paid.
Reality: The government uses many commercial and business-friendly practices, such as buying off-the-shelf items and paying by credit card. Payments are generally received within 30 days after submitting an invoice.
Myth: There's no one I can turn to in trying to obtain government contracts.
Reality: SBA and its network of resource partners have programs and hands-on assistance for small businesses contemplating selling to the federal marketplace.
Myth: I must compete head-to-head against large businesses and multinational corporations to win contracts.
Reality: The government has many categories of contract opportunities reserved exclusively for small businesses to level the playing field.
Myth: All I need to do is register in the Central Contractor Registration (CCR) system and the contracts will come rolling in.
Reality: Although CCR is the primary way federal agencies learn about prospective vendors, it's up to you to aggressively market your firm to those agencies that buy your products and services. Remember, agencies don't buy, people do.
Myth: The low offer always wins the contract.
Reality: While price is always a consideration, the government increasingly awards contracts for goods and services based on "best value," in which both technical and cost factors are weighed in the final assessment.
Even understanding the reality, you will need to determine if government contracting is right for your business. Here are some basic issues you need to consider:
Are you positive your business can financially support the execution of a government contract that may involve significant start-up costs?
Your company's financial situation is very important in your decision to pursue doing business with the government. Your business must be stable and financially sound, and you cannot have any major cash flow issues. If you have minor issues, you will need to speak with your banker to arrange a loan or line of credit. The government will not finance your contract up front, nor will it guarantee your success or bail you out.
If you are just starting out and short on cash, or having problems with payroll and other payments, government contracting is not for you. In fact, a contract might push you over the edge and put you completely out of business if you cannot fulfill its requirements.
Make sure that you can financially support the contract, and don't forget to take into account any start-up costs for the job that may be required.
Are you willing to do ongoing, detailed market research to find procurement opportunities and then take time to prepare and present offers?
Getting registered is just the beginning. Next you will need to do relentless marketing in order to find the procurement opportunities. It involves looking at the CCR (http://www.ccr.gov) and VIP (http://www.vetbiz.gov) databases regularly and often. It involves networking with everyone. It involves having contacts with the contract managers at the agencies you have targeted to allow them to get to know you. It involves being familiar with the supplier diversity managers and OSDBU (http://www.osdbu.gov) managers in the companies and agencies that you have targeted.
Marketing takes time and persistence so be prepared to be committed to the process.
One thing to know that will help is this: If you submit a proposal and you are not awarded the contract, you can ask for a review from the contracting manager. In the review, you will be told exactly why you did not win the award. This information will be very useful to you when you write the next proposal.
Subcontracting and Teaming
Are you willing to be a subcontractor to companies that are prime contractors?
Some small businesses will partner with others to win government contracts or find the prime contractor of a major project and subcontract their services. This allows smaller companies who may lack certain resources to pursue opportunities they otherwise could not do on their own. Partnering can also help spread the workload and ensure that you are not taking on more than you can handle. In addition, experience gained from being a subcontractor can help you become a prime contractor.
Subcontracting opportunities can be found at SUB-Net, SBA's searchable database that prime contractors use to post subcontracting opportunities (http://www.sba.gov/subnet). The website is also used by federal agencies, state and local governments, nonprofit organizations, colleges and universities, and even foreign governments.
Are you prepared to learn and follow the rules relating to federal acquisition?
Chief among the rules is having your business be capable of doing business using an approved electronic commerce (e-commerce) or electronic procurement (e-procurement) protocol. This is a mandate of the Government Paperwork Elimination Act of 1995, requiring the government to use electronic means to issue and award small business contracts, specifically those between $25,000 and $100,000. In a continuous effort to streamline the procurement process, government buyers are using new options in making purchases, such as multiple-award schedules, purchase cards, reverse auctions, etc., almost all of them technology-based.
Many small businesses are still coming up to speed with computer technology and online purchasing. E-procurement takes many forms — portals, web-based forms, electronic document management systems and so on — so be ready to do business electronically. This type of requirement is not unique to the government, as almost all major corporations now require this type of system from their vendors and suppliers.
**Veteran Tip-The Big Question
After years of serving in the military, probably the biggest question you need to ask yourself is whether you want to continue working in the government sector? As a veteran, there are many advantages and you likely have some sort of expertise that you can tap into. However, if you’re looking for something new, Government Contracting is only one of many entrepreneurial paths you could explore. If you’re still unsure which path is right for you, stay tuned as we explore other types of business endeavors that might peak your interest.