FAQ’s

1) Where can I find information on grants for entrepreneurs?

The most authoritative source of information regarding federal government grants is your local office of the federal Small Business Administration (www.sba.gov). Regarding grants made by private foundations, visit the reference desk of your local library and consult a directory of the nation’s private foundations.

But be forewarned: there essentially is no grant money available for entrepreneurs who are starting for-profit enterprises. Grant money, whether from government agencies or from private foundations, is usually reserved for non-profit organizations that address issues of great concern to the grant-givers.

A private foundation might give money to an abused women’s shelter, to a halfway house for drug-dependent teenagers or to a theatre company that produces plays written and produced by women. The federal government might grant money to a start-up company that is developing cutting-edge communications technology that has military applications, to a scientist studying the habitats of an endangered species of birds, or to a company developing anti-counterfeiting technology. But there is very little money available for an entrepreneur who wants to make a profit by offering products or services to the general marketplace.

2) What do bankers look for when they are making a decision on a loan?

A banker is looking for the answer to this question: Can I trust you to pay me back? Every piece of information that suggests a “Yes” answer, works to your advantage in the loan application process. Every piece of information that suggests a “No” answer works to your disadvantage.

Bankers usually divide the consideration of your loan application into six parts. These six parts are called the “Six C’s of Credit.” They are called “C’s” because each part starts with the letter “C.” They are:

I) cash flow
Will your business generate the cash to pay back the loan?

II) collateral
In the event that your business does not generate the cash to pay back the loan, do you have assets which can be sold to pay off the loan?

III) credit history
Does your past use of credit show you to be a responsible and trustworthy user of other people’s money?

IV) contribution
Are you yourself putting up cash which equals 25%-35% of the total funding needs of your business?)

V) character
Not exactly what you may be thinking: do all the elements of your personal life -- education, business experience, emotional maturity, time demanded of you by family obligations, your other financial obligations – mesh well with the demands of entrepreneurial life?

VI) competition
Can you prosper in the face of existing competition; are prices stable enough to allow you to make a decent profit; can you afford to keep up with the pace of technological advance in your industry; do you enter the competitive arena with a “book” of customers ready to give you business or will you have to attract customers away from existing competitors; and exactly what do you offer to the marketplace that isn’t already there?

The most important of these “Six C’s” is “cash flow coverage.” There is little or no chance of getting a loan from any lender if you cannot demonstrate a likelihood of generating the cash to pay back the loan. The other “C’s” vary greatly in their significance according to the type of lender you approach for a loan. A large commercial bank is likely to require substantial collateral, a solid credit history and at least 2 years of managerial experience in the industry in which you wish to start your business. A local community development loan program might consider “cash flow” and “credit history” critically important, but may not require “collateral.”

Please visit the “Six C’s of Credit” (link to “The Six C’s of Credit” page] page of our website to see detailed information on this subject.

3) Do I have to get a Daly City business license if I run a business out of my own home in Daly City?

Yes, you do. To apply for a business license, visit the Business License Office in City Hall at 333 – 90th Street on weekdays from 8 am to 5 pm or call 650-991-8088.

License costs for small businesses have a broad range. A license for a home-based business can cost as little as $90. For more information, please call the Business License Office.

4) Why do I need a business license if I’m operating a business from the privacy of my own home?

Whether you operate your business from a storefront in downtown Daly City or from a corner of your bedroom, your business benefits from the services provided by municipal government: police protection, fire fighting protection, garbage collection, sanitation and environmental administration. Your business license fees help pay for these services.

Moreover, municipal government wants to monitor the types of businesses operated from homes in order to ensure that such businesses are compatible with residential activities. The licensing process is the most effective, most economical and least intrusive manner of achieving this objective.

5) If I operate a business from my home, am I allowed to deduct my home as a business expense?

You are allowed to deduct some portion of the cost of maintaining your home as a business expense. Just how much depends upon how much of your home you are devoting to your business operations. Generally, the percentage of housing expense that is deductible is equal to the percentage of total living area in your home that you devote exclusively to the operation of your business.

But be careful. The Internal Revenue Service has very specific and very binding rules concerning what qualifies as a “business use of the home (BUH).” There are also very specific rules concerning BUH deductions if you use your home as a day care center.

For detailed information, get a copy of the IRS Publication #587, “Business Use of the Home” at www.irs.gov.

6) What is the easiest way to find out what local laws and regulations apply to my opening a business in my community?

The easiest way is to visit City Hall and visit the City Planning Division staff who can help you navigate the many channels of regulation and oversight. All issues concerning licensing of the handling, processing and selling of food; the electrical requirements for a bakery or barber shop; or the wheelchair access specifications for a café or restaurant can all be answered by someone in City Hall.

Residents of Daly City are encouraged to visit the City Planning Division in City Hall at 333 – 90th Street.

7) Do I have a chance of getting a loan if I have a bad credit history?

It depends on how “bad” your history is. Every lender has a different idea of what a “good” or a “bad” credit history is. Every credit history carries with it a three digit score, called a FICO score. This score is supposed to summarize the creditworthiness of the applicant. The higher the score, the lower the risk of lending to you. The lower the score, the higher the risk of lending to you. The score can range from 300 (terrible credit history) to 850 (perfect credit history).

At the present time, 50% of all credit histories in the United States carry a score of less than 720; and 50% of all credit histories carry a FICO score of greater than 720.

Most commercial banks will not consider a loan to you if your FICO score is less than 620. More conservative banks will not consider a credit application involving a FICO score of less than 680.

8) How do I go about planning the opening of a business?

We at the Daly City Enterprise Center suggest that you go through the following steps in the order in which they are presented:

I) Determine your long-term goals in life

II) Decide whether launching and operating your own
business advances these long-term goals

III) If the answer to step II is “Yes,” decide the minimal
amount of profit you need to make in order to advance your long-term goals and to make you feel good about the sacrifices you must make to be a business owner(i.e. your minimum “profit expectation”)

IV) Do some research and determine how much money you need to open your doors for the first day of business (i.e. your “start-up capital need”)

V) Determine how much of this total need you yourself can cover with your own cash (i.e. “your capital contribution”)

VI) If your total start-up capital need exceeds the capital
contribution that you can make, then you need either to borrow money or to attract investors. So begin thinking about ways in which you can make your business appealing to creditors and investors – resolve to write a detailed and comprehensive business plan.

VII) Do a monthly household budget: determine the amount of money that you have to draw from your new business (if any at all) in order to balance your monthly household budget. This amount of money (or your “salary draw”) becomes the first known operating expense of your business.

VIII) Do research and determine what all other operating expenses are likely to be: business premises rent, equipment lease expense, utilities, insurance premiums, payroll, payroll taxes, workers’ compensation premiums, office supplies, depreciation, amortization

IX) Now add your monthly “profit expectation” (step III) to your “total operating expenses” (step VIII). This is the total amount of obligations (e.g. your landlord, operating vendors, employees and yourself) that must be covered by revenues you generate by selling goods and services to your customers.

X) How many revenue dollars do you need? Divide the total in Step IX by the “gross profit margin” which prevails for a small company in your industry. This will give you the “revenue breakeven dollars,” which is the minimum sales dollars you must generate in order to pay all your business bills and put your “profit expectation” in your pocket.

XI) Now that you know roughly the level of sales dollars you
have to generate month after month, you research the industry in which you want to compete and determine if you have a chance of attracting enough customers to generate your “breakeven” level of sales dollars

XII) If your research leads you to believe that you’ve got a good chance (i.e. that the risk of failure seems to be acceptable to you), then begin writing a detailed business plan with month by month projections of accrual profit, cash flow and chances in the levels of assets and liabilities

If the process outlined above has left you confused, or if you are not familiar with some of the terms used (“gross profit”, “gross profit margin”, “depreciation” or “amortization”), then come and see us at the Daly City Enterprise Center. We exist to help you make sound decisions regarding the formation and/or the expansion of your business. Call us for a free appointment at 650-991-5103 or e-mail your specific questions to us at info@dalycityenterprisecenter.com.

9) I only want to start a modest little business with a very simple operating procedure. Can I get by without writing a business plan?

We at the Enterprise Center say: “No matter how simple your business, you need to start with a business plan.” Most people make the mistake of thinking of a business plan as a roadmap for attempting to make a profit. This is the secondary purpose of a business plan. The primary purpose is to help you make the decision: “should I even go into business?”

Unless you have written out a plan that 1) sets forth the resources you need to open, 2) lays out a marketing strategy for your goods and services in a competitive marketplace, 3) includes the projections of income and cash flow, and 4) addresses the contingency plans if things don’t go as planned, you really have no idea whether you have a chance of succeeding in your enterprise.

You certainly don’t need a business plan if two conditions apply: 1) you have an unlimited amount of money to waste, and 2) you have an unlimited amount of time to waste. Everyone who is not fortunate in having unlimited time and unlimited money needs a plan in order to avoid the unnecessary expenditure of precious money and precious time.

Think of the effort to launch a business and make a profit as a road trip. No matter how “simple” or “short” the trip, you need to take into account the condition of your car, the amount of gasoline in the tank, the amount of gasoline you may need to purchase, the amount of money in your pocket for the purchase of gas, potential toll and parking expense, traffic patterns, traffic flow conditions, road conditions, weather conditions, route and, if it is a long trip, itinerary and motel/food expenses.

Launching a business enterprise is considerably more complex than taking a road trip. The fitting of entrepreneurial effort into the larger context of one’s personal life; the budgeting of scarce resources; the researching of economic and financial conditions; the researching of competitive conditions; and the contingency planning for temporary setbacks are all considerably more complex. A plan helps simplify your handling of all this complexity.

10) Do I need to know accounting before I open for business?

There are really three answers to this question: yes, yes, yes.

Don’t make the mistake of thinking, “I’ll concentrate on selling my products. I’ll hire an accountant to keep my books and do my taxes.” This makes as much sense as saying, “I’ll concentrate on being a good doctor. I’ll hire someone else to do the chemistry and biology and all that other stuff.”

Accounting is the language of business. Accounting provides the logical framework for planning the opening or expansion of a business. Accounting empowers you to measure your progress (or lack of progress) in achieving your profit goals. You can consider yourself a businessperson only if you speak and think in the language of business. You can grow your business only if you organize your business affairs in a systematic and numbers-oriented manner. You know that you are achieving your profit goals only if you yourself can measure the stages of your success.

Every year tens of thousands of small businesses go out of business because their owners never learned to think, plan and measure in accounting terms. Knowing accounting won’t guarantee your business success. But opening for business without knowing accounting will virtually doom you to failure.