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period that includes payment on the amount borrowed plus interest.

      Taking out a personal loan is sometimes the easiest method for many, particularly when the amount needed for start-up is small. There is no requirement for a business plan and in some instances the cost of the money can be less. As long as you have the collateral and can satisfy the bank of your ability to pay, you should have not have any difficulty.

      If you plan on this type of borrowing, remember that the money is for your business, so incorporate the principal and interest payments into your business records as a loan from you. You borrow from the bank and your business borrows from you.

      3.5 Credit cards

      We do not recommend using a personal or business credit card for any kind of long-term financing due to the exorbitant interest rates most credit card companies charge. Keep your credit card available for emergencies only and pay it off in full each month.

      3.6 Private investors

      A private investor can be hard to find, and money obtained in this way generally comes with conditions. The investor may want control of the company, for example, or, if the money takes the form of a loan, an extremely high interest rate. While such conditions can be fair depending on the degree of risk, often the strings attached to this kind of financing are so stringent as to limit your ability to control your operation effectively.

      Should you find an investor you haven’t been personally referred to (e.g., if you find an investor through the newspaper), check him or her out carefully. Ask a lot of questions. Don’t let your good sense evaporate because a stranger is willing to put cash on the table.

      A good source for finding private investors is your accountant. People with money to invest in small, start-up ventures often rely on their accountants to guide them. They will ask the accountant to keep an eye out for promising business investments.

      If your accountant happens to be the potential investor’s accountant, a good relationship can result. Expect such investors to be cautious and to attach conditions to the loan. Their approach to lending money or taking an equity position in a small business is similar to that of a bank. They require complete and accurate information on the business seeking funds.

      3.7 Government

      The governments of both the United States and Canada provide financial assistance to small business.

      In the United States, the funding is administered through the Small Business Administration (SBA) which helps small businesses both educationally and financially. You can call the local SBA office at 1-800-U-ASK-SBA or visit their website at www.sba.gov. Since the SBA is a government agency, its policies are liable to change, so make sure your information is current before you apply for funds.

      In Canada, money for small business comes through a variety of government departments, both federal and provincial. The best source for information is the small business development department of your provincial government. It can advise you on what is available and what information is required to apply.

      Most government lending is done as “last resort” lending. It often takes the form of loan guarantees rather than direct loans. Government is not, nor should it be, in the business of competing with banks, trust companies, or other commercial lending institutions. You will probably be required to prove that you were unable to obtain money from other sources before approaching government sources for money. You will probably also need to have some of your own money invested in the business. Make sure you prepare proper documentation on your business before approaching any government lending department for funds.

      Many government programs give loans to, or guarantee loans for, incorporated businesses only. Small proprietorships are often ineligible for certain types of government funding.

      4. Licensing

      Always remember to have the appropriate business license, health permits, and other local registration. City or municipal government agencies usually require you to have a business license. Check with your city hall business development officer for a complete list of all appropriate registration needed. Be sure to do this before you open — it’s a lot easier then.

      State and provincial organizations usually require business name registration. Contact your local business development officers for details.

      3

      Insurance

      Take calculated risks. That is quite different from being rash.

      — George S. Patton

      In the previous chapters we’ve mentioned the risks of starting up a coffee bar. Don’t let risks stop you setting up a coffee bar, but do be aware of the problems you might face.

      Proper risk management means planning for potential problems and attempting to insure against them. You should be familiar with the various types of insurance available, the method of obtaining the insurance, the best way to reduce premiums, and the pitfalls to avoid.

      1. Obtaining Insurance

      Insurance companies market their services chiefly through the methods discussed below.

      1.1 Agencies

      These are the small, individualized operations that place home, car, or other common types of insurance with several insurance companies to which they are contracted. In some cases, to earn their commission, small agencies are under an obligation to place a certain volume of insurance with each company they deal with. Therefore, it is possible that you might be sold a policy that does not suit your needs and is not necessarily priced competitively.

      1.2 Insurance brokers

      Insurance brokers claim to have complete independence from any insurance company and more flexibility than the common agencies. In comparison with agencies in general, brokers from the larger companies are more knowledgeable about and flexible in the types of coverage and policies they offer, and they specialize in certain areas. Also, a broker should have no vested interest in placing insurance with any particular company and will therefore attempt to get you the best price and the best coverage to meet your needs. You should make specific inquiries to satisfy yourself.

      As in all matters of obtaining professional advice or assistance, you should have a minimum of three competitive quotes and an opportunity to evaluate the relative strengths and weaknesses of each. If the brokers are using the same insurance base for the best coverage and premiums, then all three brokers should recommend to you, in theory, the same insurance companies for the different forms of coverage you are requesting.

      1.3 Clubs and associations

      Ask your local Better Business Bureau and chamber of commerce about their group rates for insurance. These two organizations frequently have various types of insurance coverage available at a reduced group rate.

      2. Planning Your Insurance Program

      It is important to consider all criteria to determine the best type of insurance for you and your business. Your major goal should be adequate coverage, avoiding both over- and under-insurance. To achieve this, periodically review your situation and keep your agent informed of any changes in your business that could potentially affect your coverage.

      The following principles will help you plan an insurance program:

      (a) Identify the risk to which your business is exposed.

      (b) Cover your largest risk first.

      (c) Determine the magnitude of

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