Businesses need capital for a variety of reasons. Generally speaking, below are the reasons capital may be required:

• Startup

• Working Capital

• Expansion / Growth

• Estate Planning

Startup

Now, let’s assume there’s a great product (e.g., innovative) or service that you want to sell. To sell this product or service, you will need some infrastructure and resources (e.g., computers, equipment, people, software, etc). Yes unfortunately, the old adage, you must spend money to make money, is true.

Working Capital

There is typically a lag between the time your product and/or service is sold to a customer and the time you receive payment. This lag depends on the customer but typically is between 30-60 days once the customer is invoiced. But, you likely will have to pay your suppliers / vendors within 15 - 30 days for the raw materials you need to make your product or service. Therefore, you owe money for the raw materials before you have actually received payment from your customers. In addition, some expenses typically are prepaid (e.g., insurance, rent, etc.), which will increase the cash needs of your business.

We will soon be posting an overview of items to consider when negotiating agreements with suppliers and vendors.

There are several state and/or federal licenses, permits and/or requirements that you need to be aware of as you start a business. While my list below is not meant to be a complete list, the following items are a good place to start:

According to the National Federation of Independent Business, small business owners cite employer sponsored health insurance as their biggest source of concern. A recent SBA report reported that the two most important factors associated with being uninsured are (i) firm size and (ii) wages. There are a lot of healthcare plan options for business options:

• Group Plans - There are several types of group plans.

  • Traditional Plans- covers reasonable healthcare expenses. Insured may go to doctor of choice.

  • HMO-covers reasonable healthcare expenses but insured must utilize doctors, provides within the HMO’s network.

  • Point of Service Plans - just as it sounds, fees paid as employees receive services. These plans often have additional fees that are burdensome to the plan participants. Therefore, FFS plans should be more of a last resort.

• Medical Savings Account (MSA) Plans - this is a consumer directed plan. It allows a company’s employees to have a tax savings account that may be used for medical expenses. These plans generally have high deductibles.

In addition, to healthcare insurance, there are several types of insurance that a business owner should have a basic understanding of to ensure the business and employees are protected.

There are several types of legal entities to choose from for starting a business. Each legal entity has its advantages and disadvantages but generally, a limited liability corporation (LLC) is the best option when starting a new company. However, it is important to compare the advantages and disadvantages of each legal entity before making a final decision.

Small businesses are predominantly funded by commercial banks. Small business financing is generally provided by those banks located in the same community or in communities nearby. As of June 2006, small businesses owed an estimated $634 billion to commercial banks - yes, $634 billion.

You may find that you prefer to buy a Franchise due to the amount of data that is provided and the operational assistance that you will be given. It is important to note that every franchise offers varying degrees of support and brand value. The costs of franchises vary but the following provides some guidelines when considering if a franchise is right for you:

Going into business for yourself is a major decision so you should have a decent framework in place to evaluate your options. The depth of your framework may vary but key items to address in your framework should include an analysis of your personal desires, products or services you plan to sell and business model you plan to utilized. In addition, you should have a view on whether you plan to start a business from scratch or buy an existing business.