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5/5/2016 | By Team United
Starting your own business can be a lot like becoming a parent. You can also expect it to take a great deal of your time before it is mature enough to function without constant oversight. The good news is that when your business succeeds you will find the rewards are worth the trouble. Just ask the owners of the Round Barn Winery, Distillery & Brewery in Baroda, Michigan.
Round Barn Winery was founded more than 25 years ago by Rick and Sherrie Moersch. There is no question that the business is thriving, and it continues to grow under the steady hands of the founders’ sons, Chris and Matt Moersch.
“My father has an entrepreneurial spirit. He wanted to be his own boss and make his own way,” according to Chris. “There’s nothing like working for yourself, and there’s something magical about growing something, harvesting it, making a product and then selling it. We’re not just a grower any more. We do a little bit of everything and that makes it even more rewarding.”
Today Round Barn Winery includes a vineyard, distillery, brewery, and restaurant. It has been so successful that this year the company received a Best Small Business Award from the Michigan Small Business Development Center.
Mark Carboneau, a business advisor at United Federal Credit Union, has been making business loans for financial institutions for more than two decades. He believes the first differentiator between those who start successful businesses and those who fail is passion. “You have to have passion for business,” he says. “Without that passion it’s difficult to make it successful.”
Carboneau also says it is a common misconception that you can’t make money the first year after starting a business.
“If you don’t have a business plan that identifies how you can generate more income than you spend your first year, then every day you go to work you’re going to be losing money. That’s a mistake,” Carboneau says. “Anyone can make money the first year if they have the right plan.”
According to the Small Business Administration, the five-year survival rate for small businesses is currently at its highest rate since 1994 — 51 percent. A well thought out business plan is one of the most important ways to make your business among those that succeed. A business plan serves as a road map. It defines your business goals and generally contains a 3-to-5 year projection describing how you plan to make money. Without it, it would be difficult if not impossible to obtain the financing you’ll need to start your business.
Business plan basics include an executive summary or snapshot of your proposed business; a description of how the company will be organized; a market analysis detailing your product, competition and how you will sell your product; and a section outlining the financing you will need to get started, as well as how and when you will be able to pay it back.
Sound daunting? There are plenty of resources to turn to for help. Many local Chambers of Commerce offer help writing business plans, or they can direct you to an instructional course to attend at a minimal cost. Small business incubators and economic development corporations are also useful resources for information. They are, after all, in the business of encouraging economic development through entrepreneurship. You can find a listing of helpful resources at the end of this article.
One of the first decisions that you will have to make as a business owner is how your business should be structured. There is no one legal entity that best fits every business. You could decide to start as a sole proprietor, partnership, limited liability entity, or corporation. Learn about the different types of business structures on the U.S. Small Business Administration (SBA) website. You also may want to seek professional advice about liability and tax ramifications.
It is possible you will need federal or state licenses or permits to run your business. If you are opening a restaurant and plan to sell alcohol, for example, you will need a license. If you are opening a gift shop, you will need a sales tax license or permit. If you want to open a hair dressing salon, you will need a professional license to work as a stylist. Even some home-based businesses need permits or licenses — day care facilities for children are good examples. Once again, you can turn to the SBA to start researching license and permit requirements.
Location can make or break a business. Be sure to check with your local zoning authorities when selecting a location to make sure you are allowed to conduct business at the site you have selected. This applies even if you plan to run a business out of your home. Most businesses choose a location that provides exposure to customers. It’s also a good idea to talk with business owners already in the area.
The SBA recommends considering the following factors when choosing your business location:
Your local economic development organizations are a good source for information about shovel-ready sites and tax incentives that may apply.
Know yourself! Identify your personal strengths and weaknesses and build a strong team of support professionals which in many cases include:
Your business plan should include what your start-up costs will be and your ongoing cash requirements. According to Catherine Gase, economic development specialist with the SBA-Michigan District Office, it is crucial to focus on the money aspect in your plan.
“Lack of capitalization or investment of cash in a new start up is often the reason a business will fail within the first several years,” Gase says. “Insufficient cash flow can be the death of a business – without cash you can’t purchase inventory, pay employees, advertise or conduct promotional campaigns, and keep up with the fixed and variable expenses. Owners must have a realistic monthly cash flow projection for the two years. Without that road map, it’s difficult to see where the business is heading.”
Plan in hand, it is time to approach prospective lenders. There are several ways to finance your business, including traditional loans, government-backed loans, personal savings and investors.
Traditional loans give the borrower more freedom in determining how to use the money. A financial lending institution will take a close look at the applicant’s history. Sometimes smaller financial institutions have personal relationships with their members or customers that allow them to consider additional factors when making a loan. United Federal Credit Union’s Robert Sykora, who has more than 25 years of lending experience, says what makes him comfortable is a successful past.
“The government-backed loans are a good choice when there is more risk than a lending institution is comfortable with. When it comes to a traditional loan, past performance isn’t a guarantee of future performance but it is a fair predictor. We look at the people involved and their history – not as a business owner but as employees. If they have done well, have good jobs and have accumulated some wealth, we are fairly certain they will be able to make a business work,” Sykora explains.
With government-backed SBA loans the government isn't directly lending money but setting guidelines for loans made by credit unions and banks, economic development organizations and micro lending institutions. SBA loans come with a government guaranty, typically covering 75-90 percent of the loan, which make it possible for a financial institution to extend a loan that it might otherwise decline. Two types of SBA loans are most commonly used for starting a business.
7(a) Loan Program is the SBA's primary lending program to help startups obtain financing. 7(a) loans are the most basic, common and flexible type of loan. They can be used for a variety of general business purposes, including working capital, machinery and equipment, furniture and fixtures, purchase or renovation of land and buildings, leasehold improvements and debt refinancing.
CDC/504 Loan Program provides businesses with long-term fixed-rate financing for major assets, such as land and buildings. The loans are typically structured with the SBA providing 40 percent of the total project costs, a participating lender covering up to 50 percent and the borrower putting up the remaining 10 percent. Funds from a 504 loan can be used to purchase existing buildings, land or long-term machinery; to construct or renovate facilities; or to refinance debt in connection with an expansion of the business.
United has loan experts ready to get you started. To discuss financing a small business in detail, contact Bob Sykora, Mark Carboneau or another business advisor at United Federal Credit Union by clicking here: Business Advisors Federally insured by NCUA. Equal opportunity lender. Loan and payment terms subject to credit review and approval. Terms and conditions subject to change without notice.
Learn more details about SBA loans here. Information about other funding sources is available from the following resources:
For information about writing a business plan, contact one of these organizations. They are all in the business of helping you succeed at business!
Arkansas Fort Smith Regional Chamber of Commerce, Springdale Chamber of Commerce, Van Buren Chamber of Commerce, Alma Chamber of Commerce, Arkansas Economic Development Commission, Arkansas Small Business and Technology Development Center
Michigan Cornerstone Chamber of Commerce, Four Flags Area Chamber of Commerce, Michigan West Coast Chamber of Commerce, Michigan Economic Development Corporation, Michigan Business Incubator Association
Nevada Carson City Chamber of Commerce, Carson Valley Chamber of Commerce, Economic Development Authority of Western Nevada, Entrepreneurship Nevada, Nevada Governor’s Office of Economic Development, Nevada Small Business Development Center, Reno Collective, The Chamber – Reno, Sparks, Northern Nevada, Western Nevada Development District
North Carolina Asheville Area Chamber of Commerce, Henderson County Chamber of Commerce, Statesville Chamber of Commerce, North Carolina Small Business Commerce, Henderson County Partnership for Economic Development, Statesville Regional Development