Frequently-Asked Questions
- I want to start a small business. Where do I begin?
- Where can I get help with preparing my business plan?
- What should I know about accounting and bookkeeping?
- How do I find suppliers?
- I want to operate a home-based business. Are there special considerations?
- I'm thinking of buying a business. How do I know if it's priced right?
- I'm thinking of buying a franchise. Where can I get more information?
I want to start a small business. Where do I begin? ( Top )
If you do not already have a copy, order the free book, A Guide to Starting
a Business in Minnesota. This comprehensive guide, prepared by the Small
Business Assistance Office of the Minnesota Department of Employment and Economic
Development, addresses topics like choosing the form of business organization,
financing the business, tax issues, issues for employers, intellectual property,
and many others. The Guide also contains a comprehensive listing of
resources for small companies, and a listing of all state-required licenses
and permits. See
our Publications listing for an online order form, or call the 24-hour
order line, 651-556-8425 (Twin Cities metro calling area) or 1-800-310-8323
(outside the Twin Cities calling area).
Another important first step is to prepare a business plan. The business plan describes the business – the product or service, the market, management and other human resources, and financing needs. A well-prepared business plan helps the prospective owner assess the feasibility of the venture: is there a market for the product or service, and do the potential rewards justify the investment. As the business matures, the business plan serves as a sales tool for raising capital and a management tool for monitoring the growth of the business and charting future directions.
Where can I get help with preparing
my business plan? ( Top )
There are many tools available to help you prepare a business plan. The business
reference section of your local public library will have books and other materials
that describe the business planning process, and contain sample formats. The
business reference librarian can also direct you to materials that will help
you research and understand the potential market for your product or service.
There are also many online resources, such as the U.S. Small Business Administration's Library & Resources that provide workbooks and checklists to help you develop your business plan. Minnesota Rural Partners BizPathways allows you to create and save your business plan online, and track your progress in becoming an entrepreneur.
The Small Business Development Centers, SCORE, and other organizations offer seminars at modest cost on starting a business and preparing a business plan.
If you have prepared a draft business plan, you can contact the SBDC nearest you for assistance in reviewing the plan and answering your questions.
What should I know about accounting and bookkeeping? ( Top )
Keeping adequate books and records is important for a number of reasons:
- To monitor how well the business is doing
- To substantiate tax returns
- To support requests for financing
- To support your claims about the business' profitability, should you wish to sell it
You can use commercial computer software to perform most bookkeeping and accounting tasks. It is critically important, however, that you understand the financial statements that are produced, and the numbers behind them. The three basic financial statements are the balance sheet, which is a record of assets, liabilities and capital; the income statement (also called profit and loss statement), which is a summary of your earnings and expenses over a given period of time; and the cash flow statement, which is a summary of actual cash flows in and out of the business from operations, financing and investment.
Consult with your accountant or a Small Business Development Center counselor for help in setting up your books and records, and understanding your financial statements and financial accounting system. The state's technical and community colleges and universities offer seminars and extended courses on accounting, record keeping and financial analysis. If you are not familiar with these issues, it may be advisable to take one of these seminars or classes.
How do I find suppliers? ( Top )
There are a number of readily-available resources to help you find suppliers.
If you know the manufacturer of the product line, a letter or phone call
or visit to the manufacturer's website will get you in contact with the
local wholesaler or distributor. The business reference librarian at your
local public library can direct you to sources like the Thomas Register,
which lists manufacturers by categories and geographic area. Most libraries
also have directories of manufacturers for various states. For some product
lines, trade shows are good ways to contact suppliers and compare competing
products.
I want to operate a home-based business.
Are there special considerations? ( Top )
The same considerations that apply to any business also apply to a home-based
business. Careful consideration should be given to whether the home is an appropriate
location, given the demands of the business and personal or family needs. In
addition, individuals operating a home-based business should check with the
unit of local government where they live to determine whether local zoning
ordinances allow operating the business in a residential area. Individuals
who rent or lease their residence should check their lease agreement to determine
whether they can conduct a business from the rented or leased premises. Residential
insurance policies typically do not cover losses from business operations,
so business insurance coverage should be discussed with your insurance agent.
Special tax considerations may apply to businesses operated out of the home.
Your tax advisor can help you determine how to apply these considerations to
your situation.
I'm thinking of buying a business.
How do I know if it's priced right? ( Top )
There are a number of ways to value a business. The most appropriate method
depends on the facts and circumstances relevant to the business and particular
transaction. For example, the valuation of many service businesses depends
heavily on relationships between management and customers, whereas the valuation
of many manufacturing companies takes into consideration the value of inventory
and equipment. It is advisable to seek the opinion of a knowledgeable business
appraiser for help in pricing a business. Organizations such as the Institute
of Business Appraisers and the American
Society of Appraisers maintain online lists of members and information
about members' credentials. Professional advisors such as attorneys or accountants
can also provide referrals to competent business appraisers.
While Small Business Development Center counselors can provide advice on the business valuation process and factors in valuing a proposed business opportunity, counselors do not perform business valuations as part of SBDC counseling services.
I'm thinking of buying a franchise.
Where can I get more information? ( Top )
A franchise is a method of marketing and distributing goods and services. A
franchise is broadly defined as a contract or agreement between two or more
persons by which the franchisor (seller), for a fee, gives the franchisee (buyer)
the right to engage in the business of offering or distributing goods or services
using the franchisor's trade name, trademark, service mark, logotype, advertising
or other commercial symbol. Both the franchisor and the franchisee must have
a community of interest in the marketing of the goods or services.
Franchisors must register the proposed franchise with the Minnesota Department of Commerce. Applications must comply with the Uniform Franchise Offering Circular (UFOC) guidelines of the North American Securities Administrators Association (NASAA). These guidelines prescribe disclosures that a franchisor must make available to prospective franchisees, and require that franchisors provide prospective franchisees with audited financial statements and copies of proposed contracts and agreements pertaining to the proposed franchise relationship. Information on whether a franchise is registered with the Minnesota Department of Commerce may be obtained at the Department's website or by writing the Minnesota Department of Commerce, 85 7th Place East, Suite 500, St. Paul, MN 55101, telephone 651-296-2488 (Twin Cities calling area) or 1-800-657-3602 (toll free outside the Twin Cities calling area).
Franchises are regulated at the federal level by the Federal Trade Commission (FTC). The FTC publishes a number of informative booklets and other materials such as A Consumer's Guide to Buying a Franchise, Guide to the FTC Franchise Rule, Franchise and Business Opportunities (discussing buyers' rights and complaint procedures), Avoiding Vending Machine and Display Rack Scams, and others. These publications are available online or by calling 1-877-382-4357 (toll free) or by writing the Federal Trade Commission Consumer Response Center, 600 Pennsylvania, NW, Room H-130, Washington, DC 20580-0001.
The U.S. Small Business Administration's online Small Business Planner offers franchise information in the section Buy a Franchise. Also available is the publication Is Franchising for Me? [PDF] for download.
Another valuable publication is An Introduction to Franchising, published by the Small Business Assistance Office of the Minnesota Department of Employment and Economic Development, in collaboration with the law firm of Briggs and Morgan P.A. This publication is available for download or viewing in .pdf format from the MN SBAO or DEED website.