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2B ■ Entrepreneur’s Edge THE BUSINESS JOURNAL phoenix.bizjournals.com NOVEMBER 21, 2003 TABLE OF CONTENTS Entrepreneur’s Edge A resource guide filled with the tools to help your business reach the top • Credits Project editor: Randi Weinstein Copy editor: Carol Rennen Cover design: Matt DePinto Contributing writer: Susan Mercer Hinrichs On the cover: Slide provided by the Arizona Office of Tourism Welcome letters: ■ Arizona Gov. Janet Napolitano . . . . .4 ■ Arizona Department of Commerce Director Gil Jiménez . . . . . . . . . . . .4 ■ The Business Journal Editor Ilana Ruber . . . . . . . . . . . . . . . . . .5 ■ Wells Fargo Business Banking Executive Vice President and Manager Dean Rennell . . . . . .6 ■ Sam’s Club President and CEO Kevin Turner . . . . . . . . . .7 Chapter 1 Building a Business: Tools for starting, growing & locating your company . . . . . .9 Arizona Department of Commerce programs and services . . . . . . . .10-12 ■ Small Business Services . . . . . . .10 ■ Minority/Women-Owned Business Services . . . . . . . . . . .10 ■ Governor’s Small Business Advocate . . . . . . . . . . . . . . . . . .10 ■ Business Attraction and Development . . . . . . . . . . . .10 ■ ArizonaBusinessLINC.com . . . . . .10 ■ Rural Development Office . . . . . . .10 ■ Community Planning Office . . . . . .10 ■ International Trade and Investment . . . . . . . . . . . . . .11 ■ Workforce Development . . . . . . . .11 ■ Job Training Program . . . . . . . . . .11 ■ Apprenticeship Program . . . . . . . .11 ■ IT Training Tax Credit . . . . . . . . . .11 ■ Arizona Workforce Connection . . . .11 ■ Arizona Film Commission . . . . . . .11 ■ Business Development Finance . . . . . . . . . . . . . . . . . . .11 ■ Commerce and Economic Development Commission . . . . . .12 ■ Office of Economic Information and Research . . . . . . . . . . . . . . .12 ■ Office of Innovation and Technology . . . . . . . . . . . . . .12 Discover the Arizona Business Connection . . . . . . . . . . . . . . . . . . .12 Business structures and registration . .13 ■ Sole Proprietorship . . . . . . . . . . .13 ■ General Partnership . . . . . . . . . .13 ■ Limited Partnership . . . . . . . . . . .13 ■ Limited Liability Partnership . . . . .13 ■ Limited Liability Company . . . . . . .13 ■ Corporation . . . . . . . . . . . . . . . .14 ■ S Corporation . . . . . . . . . . . . . . .14 ■ Foreign Corporation . . . . . . . . . . .14 ■ Tax Exempt Organizations . . . . . . .14 ■ A comparison chart of business structures . . . . . . . . . . . . . . . . .15 Trade Names . . . . . . . . . . . . . . . . .17 ■ Questions and answers to help you get started . . . . . . . .17 ■ Where to file for a trade name . . .17 ■ Filing guidelines . . . . . . . . . . . . .17 A solid business plan is a must . .18-19 Tips for writing your blueprint . . . . . .19 Library Resources . . . . . . . . . . . . . .20 How to: Picking a name is an important step .16 Susan Brooks: Vision, first and always . . . . . . . . . .21 Chapter 2 Locations & Regulations . . . . .22 How to: Location makes a difference . . . . . . .23 Scott Clark: Be prepared for OSHA . . . . . . . . . . .25 Protect your business . . . . . . . . . . .24 Industry classifications . . . . . . . . . .25 A chart of industry classifications . . .26 Chapter 3 Finance & Accounting . . . . . . .27 Consider options for capital . . . . . . .28 SBA loans for your business . . . . . . .28 Help is available for small businesses . . . . . . . . . .29-31 ■ Commercial banks . . . . . . . . . . .29 ■ Business financial organizations . .29 ■ A listing of financial resources . . .30 ■ Small Business Administration . . .30 NOVEMBER 21, 2003 THE BUSINESS JOURNAL phoenix.bizjournals.com Entrepreneur’s Edge ■ 3B ■ Venture capital . . . . . . . . . . . . . .30 ■ Arizona enterprise zones . . . . . . .30 ■ Securities offerings . . . . . . . . . . .31 Be aware of different tax laws . . .32-33 ■ Arizona Department of Revenue . .32 ■ Arizona’s joint tax application questionnaire . . . . . . . . . . . . . . .32 ■ Transaction privilege (sales) tax . .32 ■ Use tax . . . . . . . . . . . . . . . . . . .32 ■ Withholding and unemployment taxes . . . . . . . . . . . . . . . . . . . . .32 ■ Wholesale tobacco dealer’s license . . . . . . . . . . . . . . . . . . . .32 ■ Liquor wholesalers, microbreweries, farm wineries and cider products . . . . . . . . . . .32 ■ Corporate income tax . . . . . . . . .32 ■ Exempt cities . . . . . . . . . . . . . . .33 ■ IRS resources . . . . . . . . . . . . . . .33 ■ Property taxes . . . . . . . . . . . . . .33 ■ Unemployment insurance . . . . . . .33 ■ Federal tax requirements . . . . . . .33 ■ Federal income tax withholding . . .33 ■ Social Security taxes (FICA) . . . . .33 ■ Federal unemployment tax . . . . . .33 Rick Rayson: Private firms should note Sarbanes-Oxley . . . . . . . . . . . . . . . .31 How to: Choose your accountant with care . . .34 Chapter 4 Technology . . . . . . . . . . . . . . .35 How to: Find a Web firm that fits your vision . .36 Brad Patten: Learn to manage technology . . . . . . .37 Tips to leverage the Internet . . . . . . .37 Chapter 5 Sales & Marketing . . . . . . . . . .38 State contracts boost business . . . . .39 Avoid these 6 marketing mistakes . . .41 How to: Choosing the right ad agency is key . .40 Richard Haasnoot: Make marketing persuasive . . . . . . .42 Chapter 6 Human Resources . . . . . . . . . .43 Labor regulations . . . . . . . . . . . .44-47 ■ Posting requirements . . . . . . . . . .44 ■ Federal . . . . . . . . . . . . . . . . . . .44 ■ Arizona . . . . . . . . . . . . . . . . . . . .44 ■ Local cities . . . . . . . . . . . . . . . . .44 ■ Fair Labor Standards Act . . . . . . .44 ■ Wage payment laws . . . . . . . . . . .44 ■ Minimum wage and overtime . . . .44 ■ Employing minors . . . . . . . . . . . .44 ■ Right-to-work legislation . . . . . . . .45 ■ Safety regulations . . . . . . . . . . . .45 ■ Discrimination in employment . . . .45 ■ Immigration and Nationality Act . . .45 ■ Arizona’s workers’ compensation insurance . . . . . . .45 ■ Defining employee/independent contractor status . . . . . . . . . . . . .46 ■ Employees who work in more than one state . . . . . . . .47 ■ What is exempt employment? . . . .47 ■ Constructive discharge . . . . . . . .47 How to: Research health insurance providers .48 Kevin Herring: Create commitment workplaces . . . .49 Chapter 7 Expanding Your Business . . . . .50 How to: Program helps finance overseas trade . . . . . . . . . . . . . . . .51 Douglas Cohen: Grow your business internationally . . .52 Top Arizona export destinations . . . . .51 Top Arizona exports by sector . . . . . .52 Appendix Resource Information . . . . . . . .54 ■ State licensing agencies . . . . .54-55 ■ City & town licensing agencies . . . . . . . . .55-56 ■ State economic development organizations . . . . . . . . . . . . . . .56 ■ Tribal offices & organizations . .56-58 ■ Minority organizations . . . . . . . . .58 ■ City & town economic development organizations . . .58-59 ■ Chambers of commerce . . . . .59-61 ■ Business checklist . . . . . . . . . . .63 ■ Business affiliations . . . . . . . .64-65 ■ Center for the Advancement of Small Business . . . . . . . . . . . .65 ■ Small Business Development Centers . . . . . . . . . . . . . . . . . . .66 ■ Small Business Services Office . .67 ■ SCORE . . . . . . . . . . . . . . . . . . .67 ■ Technology resources . . . . . . . . .68 ■ On the Web . . . . . . . . . . . . . .69-70 ■ Application for a trade name . . . . .71 Don Henninger Publisher Ilana Ruber Editor Michael Vinales Sales Manager Wimberly Doran Business Manager David Hostetler Production Director Paul Sanders Circulation Director ■ EDITORIAL: Managing Editor: Cathy Luebke Projects Editor: Randi Weinstein Copy Editors: Dale Brown Carol Rennen Graphics Editor: Matt DePinto Broadcast Reporter: Diane Arthur Senior Reporters: Angela Gonzales Mike Padgett Reporters: Adam Kress Mike Sunnucks Editorial Coordinator: John Schwartz Research Director: Judy Trunnelle Research Reporter: Leslie Donaldson Photographer: Jim Poulin Production Assistant: Austin Ricks ■ ADVERTISING: Senior Advertising Consultants: Melanie Fallen Lisa Grannis Lisa Johnson Advertising Consultants: Alicia Amsbaugh Mark Lindsey Jennifer Niccoli Lesley Sargent Classified Advertising Manager: Stephanie Handley Advertising Coordinator: Sherri Conley Graphic Designer: Tim Clarke ■ CIRCULATION: Associate Circulation Manager: Jeorgetta Douglas- Acosta Sales Development Specialist: Ericka Espino Sales and Marketing: April Sansoterra ■ ADMINISTRATION: Senior Administrative Coordinator: Carol Nelson-Park Marketing and Events Coordinator: Heidi Maxwell Receptionist: Renee Nash The Business Journal of Phoenix 101 N. First Ave., Ste. 2300 Phoenix, AZ 85003 Phone: 602-230-8400 Fax: 602-230-0955 Web: http://phoenix.bizjournals.com The Business Journal is a publication of American City Business Journals Inc. Chairman: Ray Shaw The Business Journal 4B ■ Entrepreneur’s Edge THE BUSINESS JOURNAL phoenix.bizjournals.com NOVEMBER 21, 2003 November 2003 Greetings! The Entrepreneur’s Edge is Arizona’s official guide for establishing and operating a small business. Provided by the Arizona Department of Commerce free of charge, this guide is the ideal starting point for your ven-ture. It is comprehensive, well-organized and easy to understand. The state of Arizona values small business and takes great pride in the phenomenal business growth over the past decade. The entrepreneurial spirit is the engine that drives our robust economy. Our state and local governments continue to encourage new ventures through policies and programs friendly to small business. Whether you are starting a small business, expanding or relocating to Arizona, we welcome you. I know you will find our business environment favorable and our quality of life unsurpassed. For more information on what Arizona offers you and your small business, please visit the Arizona De-partment of Commerce Web site at www.azcommerce.com. Click on Small Business Services for informa-tion and referrals — including the Arizona Business Connection (ABC) online program — tailored to meet your individual needs. Good luck and thank you for your contribution to Arizona’s economy. Sincerely, Janet Napolitano Governor November 2003 Dear Entrepreneurs: Whether you’re thinking about starting a business or ready to start or looking for ways to increase your market share, the Arizona Department of Commerce adds indispensable support and value to your efforts. This publication makes a great reference guide no matter where you are in the process. You also will find important information and easy access to many other support services by visiting the Department of Commerce Web site at www.azcommerce.com. You can write a business plan, learn how to pursue procurement opportunities through the state and local governments, retrieve the forms you need for licensing or permits and find out about important networking opportunities available throughout the state. I also encourage you to take the time to list your enterprise in one or more of the directories we have for your use online. The Arizona Department of Commerce at 602-771-1100 or by fax at 602-771-1200 can assist you with find-ing the perfect site, setting up an apprenticeship program, funding job training for your employees, or even becoming export-ready. I hope you will leverage these and all our value-added services and enjoy great success! Sincerely, Gilbert Jiménez Director Arizona Department of Commerce NOVEMBER 21, 2003 THE BUSINESS JOURNAL phoenix.bizjournals.com Entrepreneur’s Edge ■ 5B November 2003 Dear Entrepreneurs: The only thing harder than starting a small busi-ness is keeping it up and running — especially in today’s ever-changing marketplace. So The Business Journal and the Arizona De-partment of Commerce once again have teamed to produce Entrepreneur’s Edge, a resource guide that can help you answer some of those tough questions about running your business. This year marks the second time we have part-nered with La Voz to publish a Spanish-language version of this guide. We are excited to be reaching out to the Spanish-speaking portion of the community. Running a business of your own can bring independence and ac-complishment. If you already are in business and have weathered the stormy economic conditions, that’s great news. But now it is time to shift your focus from survival to growth. And this guide was developed to help you empower your small business. With Entrepreneur’s Edge, we have collected some of the best ad-vice on everything from writing a business plan, to getting financ-ing to dealing with state labor regulations. This is a good guide full of resources and advice that can help you grow your business. We often hear warnings about the high failure rates of small busi-nesses. What we don’t hear about is how remarkable it is that en-trepreneurs so often beat the odds and achieve the seemingly im-possible. And in Arizona, we continue to make national headlines as a top hot spot for these risk-takers. It takes a lot of work, solid strategy and good planning to be successful. The Business Journal can help. The mission of our paper is to be the premier source of business news and information in the Valley. We are a key source to help you grow your business. This magazine is one example of that. Thank you to Wells Fargo and Wal-Mart, our premier sponsors, the ADOC and La Voz, our Spanish-language partner in this effort. We invite you to call us for a free trial of our weekly newspaper, and watch for our daily news reports on our Web site, phoenix .bizjournals.com. Also, I hope you will contact me by phone, 602-308-6513, or e-mail, iruber@bizjournals.com, if you have suggestions on how we can continue to help you and your business. Sincerely, Ilana Ruber Editor The Phoenix Business Journal and Reaches 80% of the Spanish dominant adult community in Phoenix and Tucson.* *Source: Scarborough Hispanic Survey, Release 1 2002; TV y Más Reader Survey, February 2002; Hispanic Track, Sept. 2001 For More Information call The Ashland Media Group 602 443 4300 800 N. 1st Ave. Phoenix, AZ 85003 6B ■ Entrepreneur’s Edge THE BUSINESS JOURNAL phoenix.bizjournals.com NOVEMBER 21, 2003 Arizona Entrepreneurs: Wells Fargo is pleased to sponsor The Business Journal’s Entrepreneur’s Edge — an invaluable resource for business owners. Wells Fargo’s Arizona business banking team is another great resource for entre-preneurs, combining our community banking approach with ground-breaking technology. Wells Fargo is developing new services to help us remain Arizona’s leading small-business bank. We originate more dollars in small-business loans than any other lender in the United States, Arizona and the Valley. We also were the state’s leading Small Business Administration (SBA) lender last year, and we’re a preferred SBA lender in 27 states, including Arizona. Wells Fargo is a leader in making loans to women, Latino and African American-owned small businesses nationwide through our multibillion-dol-lar lending initiatives. Behind each of these loans is a financial services expert who gets to know you and your goals for the future, and then delivers value-added solutions and access to the funds you need. Our decisions are made locally by professionals with extensive experience in financial services. Many of these profession-als work in our 10 statewide business banking centers. They understand the needs of business customers in a changing economic environment, and they deliver fast, customized solutions. Small business is big business at Wells Fargo. Quality is our focus and innovation is our hallmark. We have developed multiple ways to serve small businesses. For example, we have placed 20 business specialists in our stores throughout the state. These specialists connect our customers with Wells Fargo’s extensive business services. One of these, our Busi-ness Direct Group, provides owners of small companies with a fast, easy application process for loans up to $100,000. We also partic-ipate in special lending and referral programs, including the Arizona MultiBank and Magnet Capital. Wells Fargo has developed channels that allow you to conduct your financial business when, where and how you want to. We pro-vide 24-hour service through our phone banks, our industry-leading online services and our network of ATMs. Providing you with the financial tools to succeed is what we’re all about. We want to offer better products and a broader product line than our local competitors and to out-perform our national competitors by staying close to our customers and providing professional, personal, timely advice and service. We have developed expertise in industries including title companies, government banking, nonprofits, health care and legal services. And we have developed innovative programs such as qualified retirement plans tailored to meet the special needs of small businesses in Arizona. We’re also a leader in developing products and services that can help our business customers fight — and win — the grow-ing problem of financial fraud. As the leading Internet bank, we continue to develop the most innovative online financial technology. Click on wellsfargo.com/biz, and you can manage accounts, get credit, buy software, get technology information, create a Web site, advertise online, send mail and even write news releases. And that’s just a partial list of what you can do with this remarkable resource. We’re leaders because we constantly ask what you want and need — and you can count on Wells Fargo to continue to keep ahead of your needs, developing more innovations that will help you build profitable and growing companies. Call me at 602-378-5723 to learn how Wells Fargo can help you and your business. Sincerely, Dean Rennell Executive vice president and manager Wells Fargo Business Banking NOVEMBER 21, 2003 THE BUSINESS JOURNAL phoenix.bizjournals.com Entrepreneur’s Edge ■ 7B Dear Entrepreneurs: At Sam’s Club, we exist solely to help small-business owners succeed nationwide. Sam Walton formed Sam’s Club 20 years ago to help small-business operators live the American Dream — the same dream he lived when he started Wal-Mart. We are proud to partner with The Business Journal in support of this edition of Entrepreneur’s Edge. As an ad-vocate and partner to millions of small businesses, it is an honor to serve the communities of Arizona. Small businesses generate at least two out of every three new jobs in America, and we’re going to do every-thing we can to help them succeed. We understand that success depends in part on mastering the basics — ex-pense control, operational efficiency, and consistent, quality materials. That’s what we provide at Sam’s Club. We recognize that time is of the essence and invite you to take advantage of the many time-saving services we offer. We make it easy and fast to shop at Sam’s Club with our early-morning Gold Key hours, Fax ’n Pull and Click ’n Pull services, special-order catalogue and Web site, www.samsclub.com. Despite the current economic challenges, we remain committed to ensuring that you can take advantage of “everyday low prices” that will enable you to drive costs out of your business, thereby lowering your over-all cost of doing business. We appreciate your patronage and hope you will allow Sam’s Club to be your resource for wholesale savings on everyday business and personal needs. If you are not currently a member of Sam’s Club, I invite you to take advantage of this special guest pass below. See you in the club! Sincerely, Kevin Turner President and CEO Sam’s Club Why become a SAM’S CLUB® Member? Savings. Quality. Choices. Value. Service. All under one roof for your convenience. Come and shop – get the same warehouse prices that our Business Members enjoy. Your exclusive Member Benefits and Services include: • Travel Services • Auto Buying Program • The Home Service Store® • Mail-Order Pharmacy • And more Join us today. For only $35 (plus tax in some places), receive two annual Membership cards – one for you and one for a household member. Your Membership is 100% guaranteed. Don’t miss this opportunity. *The SAM’S CLUB One-Day Guest Pass is good for one day only. Only original certificates will be accepted. A 10% service fee applies on all purchases when shopping with this One-Day Guest Pass (not applicable in CA, SC, or Elmsford, NY). You must pay for your purchases with cash, debit card (check Club for qualifying debit networks), Wal-Mart Credit, or Discover® card only (no checks). You may apply for Membership, subject to qualifications, while visiting any SAM’S CLUB location or online at samsclub.com. Good through December 31, 2003. Your One-Day Guest Pass* to Shop (10% Service Fee Applies) Take this Guest Pass to your local SAM’S CLUB® to gain access to the exclusive savings that businesses enjoy every day! Guest Pass #10256581687 Hurry! Good through December 31, 2003. Become a Member today and avoid the 10% Service Fee that applies to all nonmember purchases. • C-Stores and Retail Stores • Restaurants and Foodservice • Beauty Salons and Barber Shops • Contractors and Maintenance & Repair • Daycares and Schools • Vending • Offices and Office Supplies • Churches and Religious Organizations • Motels and Bed & Breakfasts Our Business Is Saving Your Business Money.SM BY SUSAN MERCER HINRICHS Special to The Business Journal The entrepreneurial spirit has burned within your soul for years. After experimenting with various ideas, you believe you’ve finally determined the best way to fill a void in a service or in-dustry. Possibly, you’ve discovered a way to make an existing product better or you’ve invented an entirely new gadget. No matter what the driver, packaging your idea or product into your own business can be both invigorating and daunting. That’s where the Arizona Department of Commerce and a host of organizations ded-icated to assisting new and established en-trepreneurs come into focus. With names like SCORE, the Service Corps of Retired Executives; EDIC, the Eco-nomic Development Information Center; and ABLE, Arizona Building Local Eco-nomics program, to name a few, entrepre-neurs can benefit from a variety of re-sources readily available to them. SCORE, for example, provides sound business advice and mentors to entrepre-neurs seeking guidance in the startup phase of their companies. Take Beverly Rathjen’s dream, for example. She was a stay-at-home mother taking care of her infant son, Kyle, when she took the first steps to turn her e-business idea into reality. She saw a SCORE newsletter at a Mesa Public Library branch and contacted the or-ganization for help. “I managed to get a great counselor, Har-vey Prezant,” Rathjen said. “Harvey led me through the business plan, and when he did not have the expertise to help me, he had me meet with a specialist at SCORE in the area I needed help. “It was a labor of love at times and a bur-den at other times,” Rathjen said, describ-ing the year-long process to develop her business plan. “I decided to have an e-busi-ness. That way I did not have to keep hours at a store and not be able to spend time with my son.” Rathjen’s idea became an Internet-based business called La Bella Madonna in the spring of 2003. The business offers gift bas-kets to new moms and their babies. “Beverly was fun to work with,” Prezant said. “She knew what she wanted to do, and we talked about her product.” Prezant is a retired Bank of America exec-utive, with more than three decades of ex-perience. A SCORE volunteer for some three years, he described Rathjen’s passion for her idea as among the reasons the orga-nization agreed to work with her. Also, he said her idea made “a heck of a lot of sense.” Before launching a new business, deter-mine the position it occupies in its market. Questions to ask include the following: 1. How does your product or service fill a void? 2. Who will your customers be? 3. How will you supply them? 4. Who or what stands as a market com-petitor? 5. How much time, energy and resources are you willing to commit toward establish-ing your business as a going concern? 6. Do statistics exist concerning similar business startups? One online resource entrepreneurs have available is the Arizona Department of Commerce’s Web site, www.azcommerce .com. The site provides a wealth of free in-formation to help small-business startups. Click the links for facts and figures about Business Development and Attraction. The Innovation & Technology link contains in-formation about support sources and ven-ture- capital opportunities. Another will de-scribe the Arizona Bioindustry Cluster. The Center for the Advancement of Small Business at the W.P. Carey School of Busi-ness at Arizona State University is as an-other valuable resource. According to center Director Mary Lou Bessette, “Success is about making the best choice (for an individual’s business). You can live what you imagine.” Bessette said Arizona’s pro small-business climate makes it one of the leading states in the nation for startups. CASB figures indi-cate 651,000 small businesses exist in Ari-zona, providing for 98 percent of all new jobs created. Among those businesses, 41 percent of them are started by women. A key part of establishing a business is de-ciding the business structure under which an enterprise will operate. A business can be established as a partnership, a limited li-ability company, a limited liability corpora-tion or an S corporation, to name a few. (For more information, see Pages 13-15.) With these basics in place, entrepreneurs take the first steps in hanging out their own shingle. (For a helpful business checklist filled with important steps to get started, see Page 63.) NOVEMBER 21, 2003 THE BUSINESS JOURNAL phoenix.bizjournals.com Entrepreneur’s Edge ■ 9B CHAPTER 1 Building a Business Tools for starting, growing & locating your company 1• 10B ■ Entrepreneur’s Edge THE BUSINESS JOURNAL phoenix.bizjournals.com NOVEMBER 21, 2003 The Arizona Department of Commerce provides a wholly integrated ap-proach to statewide economic devel-opment. Our job is Jobs! By pursuing strategies that diversify our economy, we facilitate the creation of high-paying jobs and expand our tax base in order to fund critical public services and improve quality of life for all Arizonans. Small business is the backbone of our economy. More than 95 percent of the busi-nesses in Arizona have fewer than 100 em-ployees and nearly one-third (numbering close to 300,000) are sole proprietorships or home-based. Every area of service within the Arizona Department of Commerce sup-ports the success of this small-business base. Here’s why: According to the U.S. Small Business Ad-ministration Office of Advocacy, small busi-ness creates more than 75 percent of net new jobs. Small enterprises also produce 55 percent of innovations, twice as many prod-uct innovations as large firms, and obtain more patents per sales dollar than large business. Visit the ADOC Web site at www.azcom-merce. com for information and tools to start, maintain and grow your business. Small Business Services Arizona Department of Commerce Small Business Services offers support through several key functions: The Arizona Business Connection is a step-by- step resource center providing customized licensing and referral information for every stage of small-business development. You can connect 24/7 via the Department of Com-merce Web site at www.azcommerce.com. Click on Small Business Services and follow the Arizona Business Connection link. Minority/Women-Owned Business Services The Arizona Department of Commerce collaborates with numerous business orga-nizations to promote entrepreneurship among minorities and women in Arizona, facilitate procurement opportunities and advocate on issues that are important to these communities. Governor’s Small Business Advocate The Small Business Advocate keeps an open line of communication with the gover-nor, works with chambers and other groups to develop policies and programs that ad-dress statewide issues concerning small businesses, interacts with state regulatory agencies to improve their responsiveness to small businesses and assists entrepreneurs in working with other state agencies. The Governor’s Council on Small Business is staffed by the Commerce Small Business Services division. The council’s role is to sup-port the outreach and resource-developing activities of the Governor’s Small Business Advocate by: • Identifying and recommending opportu-nities to promote the prosperity of Arizona small businesses to the governor and the state Legislature. • Providing a forum for small-business owners to voice concerns and recommenda-tions to the governor. • Investigating and evaluating the impact of state regulation, legislation and administra-tive processes on Arizona small businesses. Business Attraction and Development The Arizona Department of Commerce provides a single point of contact for assis-tance in site selection and access to busi-ness resources. Free services include: • Information on available sites through-out Arizona. • Customized research on the state, its economy and industry sectors. • Cooperative participation in state-spon-sored trade shows. • Access to incentive programs and appli-cation assistance. • Coordination and facilitation of meet-ings with statewide resource providers. • Specialized assistance in aerospace, bio-sciences, environmental and information-technology sectors. AZBusinessLINC.com The Arizona Department of Commerce ex-panded this supplier network online service to cover the state. AZBusinessLINC.com is where buyers and sellers meet through a comprehensive and interactive database that: • Profiles the capabilities of Arizona busi-nesses. • Increases buyer awareness of the products and services available throughout the state. • Assists sellers to identify new marketing opportunities and access companies with im-mediate procurement needs, companies seek-ing longer-term supplier relationships and businesses looking for collaborative partners. AZBusinessLINC staff provides technical support and extended confidential buyer-needs search assistance. If your search effort is unsuccessful or your company’s product or service category is not adequately de-fined, call toll free 866-882-5462. Rural Development Office The Arizona Department of Commerce promotes local self-sufficiency and supports sustainable economic development with technical and financial assistance from a broad range of sources. The Rural Develop-ment office provides local leaders and com-munity organizations with customized train-ing and resources through three programs: Main Street Program The Arizona Department of Commerce af-filiates with the National Main Street Pro-gram to assist Arizona communities in revi-talizing their downtown business districts by: • Organizing and training Main Street boards and committees. • Facilitating meetings and work program retreats. • Accessing technical and financial assis-tance for program implementation. • Offering design assistance to business owners. Rural Economic Development Initiative The Arizona Department of Commerce provides direct assistance to rural commu-nities in evaluating resources and organiz-ing economic development efforts. Quali-fied rural programs and organizations with an ongoing commitment to economic de-velopment can be accredited through REDI, making them eligible for technical and matching-fund assistance to develop an ef-fective, locally generated program of activi-ties; and implement plans to become more attractive for capital investment and indus-trial and business locations. Business Retention and Expansion Department of Commerce efforts in com-munities throughout Greater Arizona for the retention and expansion of business em-phasize creating an environment that en-courages stability and success. We provide expertise and resources to aid in the design and implementation of a locally defined and community-based BR&E program. Community Planning Office The Arizona Department of Commerce Community Planning Office directs the state’s largest job-retention program in his-tory through the Arizona Military Airports Regional Compatibility Project, a proactive endeavor to convene stakeholders around each base — the governments, military, homeowners and business people — to ad-dress land-use compatibility issues. Military installations throughout Arizona account Arizona Department of Commerce Continued on Page 11B NOVEMBER 21, 2003 THE BUSINESS JOURNAL phoenix.bizjournals.com Entrepreneur’s Edge ■ 11B for some 83,000 jobs and $5.7 billion to the state economy each year — all of which is threatened by uncontrolled growth. Certified community planning profession-als foster community capacity-building and foundation development through technical expertise on the Growing Smarter man-dates, land-use and strategic planning, zon-ing, infrastructure, research and public par-ticipation. International Trade and Investment The Arizona Department of Commerce In-ternational focus is twofold: to help small-and medium-sized businesses thrive by as-sisting them with foreign trade; and to at-tract foreign investment to the state. In addition to an Arizona-based team of international trade specialists, expertise and resources are available through foreign trade offices in Mexico, Japan, Taiwan and the United Kingdom. These experts facili-tate contacts with local partners and gather sales leads that can be matched with Ari-zona- based suppliers. Educating Arizona businesses on elements of foreign trade From questions about getting started to specific concerns about developing the ex-port side of your business, our trade spe-cialists are experts in marketing abroad. In addition to general trade information available online at www.azcommerce.com, experts help you find interested trading partners and meet with you and your staff to assist in developing your trade strategy. Getting started Your first step is to identify the most lucra-tive potential markets for your product or service. We provide country-specific infor-mation gathered by U.S. embassies and con-sulates detailing market size, distribution channels and major in-country players; ref-erence materials/sources for your industry, including trade journals, associations and promotional events; and reports on world-wide trends in your primary target areas. Contact facilitation Once you’ve decided which markets are best for your business, we assist you in iden-tifying potential buyers, distributors, suppli-ers or other strategic partners. We maintain numerous sources and will assist you in de-veloping a list of targeted companies. Company background Before responding to foreign leads or sign-ing any contractual agreements, do your homework. We’ll help you obtain general background information on your potential partners so you can make informed decisions. Trade missions and trade/catalog shows Arizona Department of Commerce trade missions are designed to introduce small and medium-sized Arizona businesses to in-ternational markets. Our trade specialists and foreign offices help you identify prospective partners/distributors, schedule meetings, and arrange for interpreters and networking events. These missions provide an opportunity to assess target markets first-hand. We invite Arizona businesses to exhibit with us at trade and catalog shows world-wide. In some cases, you can promote your business through catalog shows attended by our trade specialists. Workforce Development The Arizona Department of Commerce pro-vides staff oversight and policy direction to the Governor’s Council on Workforce Policy. The 35-member council is made up of busi-ness, state and educational leaders who rec-ommend and advise the governor on all is-sues related to improving the effectiveness of Arizona’s work-force development system, known as the Arizona Workforce Connection. Job Training Program Design a customized curriculum to meet your specific work-force needs by applying for a grant through the Arizona Department of Commerce Job Training Program. The program supports the design and delivery of training plans that meet unique industry standards and challenges. Under the “Net New Hire” portion of the grant program, businesses can apply for grants that return up to 75 percent of the costs of training net new employees in jobs that meet the threshold wage criteria. The “Incumbent Worker” portion of the grant program allows for training that up-grades the skills of existing employees who also must meet the threshold wage criteria. The Incumbent Program can reimburse employers up to a maximum of 50 percent of allowable training costs and may include: course development fees; and development, purchase or production of training materi-als or trainer fees. Applications for the Arizona Job Training program are available online at www.az commerce.com or by calling 602-771-1181. Apprenticeship Program Registered apprenticeship is a training system that produces highly skilled workers to meet your demands. Apprenticeship is a proven strategy that combines on-the-job training with related classroom instruction. Arizona has more than 100 registered ap-prenticeship programs with more than 2,500 apprentices in industries such as agri-culture, construction and manufacturing. For more: 602-771-1182 or www.azcom merce.com. IT Training Tax Credit Meet your immediate needs for in-house information technology skills and offset training costs through the Arizona Informa-tion Technology (IT) Training Tax Credit available to businesses as a 50-50 match for training up to 20 employees in information technology skills. To qualify for the Infor-mation Technology Training Tax Credit, an Arizona business must: • Be sending an Arizona employee to qual-ified information training. • Use accredited training institutions. For applications, visit www.azcommerce .com or call 602-771-1181. Arizona Workforce Connection Attract qualified applicants and cut em-ployee selection and retention costs through the Arizona Workforce Connection. Arizona employers profit from the simple, flexible services that Arizona Workforce Connection sites tailor for unique business needs. Streamlined and standardized for busi-ness efficiency, Arizona Workforce Connec-tion sites integrate the major work-force de-velopment players across the state. And, most services are provided free of charge. Services include: • Job bank posting. • Screened and trained labor pool. • Training and education resources for in-cumbent workers. • On-site applicant screening and job fairs. • Rapid response pre-layoff support. • Current and historical labor market in-formation. • Unemployment insurance information. For more information, visit the Web site at www.arizonaworkforceconnection.com. Arizona Film Commission Housed in the Arizona Department of Commerce, the Arizona Film Commission attracts film and television production from around the globe for economic development; serves as the statewide liaison for local, county, state, federal and tribal governments as well as private-sector businesses and prop-erty owners statewide; promotes Arizona employment for film professionals and Ari-zona businesses used by film companies. Businesses benefiting from film-company spending include everything from hotels and restaurants to car rental agencies and a wide range of support services. Business Development Finance Arizona Department of Commerce finan-cial programs that promote economic de-velopment opportunities statewide include: • The Arizona Enterprise Zone Program, or EZ, offers tax benefits to businesses lo-cated in distressed areas of the state. The EZ program offers a tax credit to nonretail Continued from Page 10B See ADOC, Page 12B 12B ■ Entrepreneur’s Edge THE BUSINESS JOURNAL phoenix.bizjournals.com NOVEMBER 21, 2003 What are the right reasons for start-ing your own business? It starts with asking yourself what makes your business idea different; what is your competitive edge? Regardless of the type of business you are in-terested in, there are many community and edu-cational organizations that can help you, with-out charge, explore your business options. Once you know what type of business you want to start, visit the Arizona Department of Commerce’s Web site at www.azcommerce .com and click on “Small Business Services.” The Small Business Services Division is your statewide resource for licensing, certification and small-business assistance for every stage of business development: startup, expansion or relocation. The Arizona Business Connection is a step-by- step online service that walks you through what you need to know to start or expand your business, and it is accessible 24 hours, seven days a week (24/7). This program ap-plies to the majority of people/organizations seeking occupational, business or license in-formation, and will provide other valuable information and resources. The program is designed to take you through a series of brief statements; you can skip over any statement that doesn’t apply to your business needs. Once you have com-pleted the program, a customized report will appear on the screen. Your report will enable you to link over and download most of the forms you may need. It also provides you with telephone numbers and addresses in the event that you wish to contact an agency or organization directly. You can revisit the program as many times as you like. A personalized “Welcome Back” page will be created after your first visit, of-fering quick links to the pages you want in-formation about. Some of the information available to you on our Web site and in En-trepreneur’s Edge include: Trade Name/Trademark Information on how to register and re-search your business name or logo with county, state and federal agencies. Corporations/LLCs Which is right for me? This book contains one of the best reference charts for making an informed decision. Once you decide, our Web site will direct you to the necessary forms to get started. Industry Specific Information Regulatory licensing and/or certification and environmental restrictions or require-ments, health permits, child-care licensing, contractor’s license, auto dealer’s license, etc. State Taxes Access to information and brochures on Arizona’s Transaction Privilege (Sales) Tax (TPT) and Use Tax. Employees The most important part of any business is its employees. How do I hire employees? What forms am I required to file? Where can I go for help? Step-by-step to hiring your em-ployees. City & County Tax/Licensing Every city and county in Arizona has a dif-ferent set of requirements for starting a busi-ness within its jurisdiction. Some of these requirements include: home-based business permits, licenses, tax licenses, zoning permits, etc. Referrals/Special Assistance Small Business Services has developed a free online directory to promote the state’s minority and/or women-owned businesses throughout the world. This directory helps state, county, city and corporate buyers look-ing to do business with minority and/or women vendors. You can add your business to the directory. You can search the directory for vendors to do business with. You also can download the directory. For Bid Opportunities, there are links to public and private-sector buyers. The Calen-dar of Business Events links to a schedule of statewide networking meetings. Discover the Arizona Business Connection businesses for net increases in new quality jobs within a zone. The program offers manufacturing businesses a property tax re-duction for a period of five years if the com-pany makes the required investment in fixed assets in the zone. • The Private Activity Bonds Program, or PAB, allocates the state’s portion of the feder-ally established tax-exempt private activity bond volume cap. PABs can be used to fi-nance industrial and manufacturing facilities and equipment, student loans, single and multifamily housing, private utility projects and some municipal facilities. In addition, Commerce Business Develop-ment Finance administers the Military Reuse Zone. For more: www.azcommerce.com. Commerce and Economic Development Commission The Commerce and Economic Develop-ment Commission, or CEDC, is appointed by the governor to advise and coordinate economic development policy for the state of Arizona. Office of Economic Information and Research The Office of Economic Information and Research serves as the state’s clearinghouse for economic information and manages re-search related to Arizona’s economy. The of-fice also provides information and analyses of trends, opportunities, best practices, market issues and department/program impacts. Office of Innovation and Technology The Arizona Department of Commerce serves as a catalyst to accelerate the growth of technology businesses throughout the state. The goal is to achieve dynamic eco-nomic development through innovation and technology. Resources provided by this office to Arizona entrepreneurs and high-tech firms include: • A statewide network of industry part-ners, university leadership and professional organizations that provide expertise to startup businesses. • A grant program specifically for entrepre-neurs to develop and commercialize global technology by accessing Small Business Inno-vation Research (SBIR) and Small Business Technology Transfer (STTR) federal funding. • Information and referrals from a wide spectrum of financial resources that provide capital for growing technology businesses. The 31-member Governor’s Council on In-novation and Technology is staffed by the Commerce Office of Innovation and Tech-nology. Charged with developing strategies to improve Arizona’s knowledge-based econ-omy, the council will deliver a technology blueprint that can be implemented by pri-vate and public sectors on a statewide basis. For more: see the Innovation & Technology link at www.azcommerce.com. ADOC: Commerce Department services help business owners Continued from Page 11B NOVEMBER 21, 2003 THE BUSINESS JOURNAL phoenix.bizjournals.com Entrepreneur’s Edge ■ 13B The first step to establishing a business in Arizona is to determine which form of business structure is most appropriate for your operations. To do this, an analysis of the various legal and tax-related implications associated with the forms of business structure must be conducted. In Arizona, as in all states, several busi-ness structures exist. The four most com-mon are the sole proprietorship, general and limited partnership, limited liability company and corporation. The state also recognizes a limited liability partnership. The following section provides a brief de-scription of each, including general advan-tages and disadvantages. An attorney and/or certified public accountant should be con-sulted for further information and advice on selecting the appropriate structure for your business. Once you have determined the legal struc-ture of your business, the next step is to com-plete the necessary registration requirements. Most businesses are required to register with the state and/or county in which the enterprise will operate, and these registra-tion requirements vary. Additionally, when establishing a business with two or more people, or as a corpora-tion, you will need an Employer Identifica-tion Number (EIN), also known as a federal tax identification number. There are various methods of applying for an EIN. • Apply online at www.irs.gov/businesses /small/. • By calling 800-829-4933. • By mailing your completed SS-4 from to: EIN Operations, Philadelphia, PA 19255. Sole Proprietorship The sole proprietorship is the simplest and most common form of business organization. A sole proprietorship is defined as a business that is owned by one individual. Arizona is a community property state and a husband and wife can operate as a sole proprietor. The owner is personally responsible for all debts of the firm. Profits are considered as personal income and taxed accordingly. Advantages of a sole proprietorship: • Minimum legal restrictions. • Ease of formation. • Low startup costs. • Sole ownership of profits. • Maximum freedom in decision-making. Disadvantages of a sole proprietorship: • Unlimited liability. • Less available capital than in other types of business organizations. • Relative difficulty in obtaining long-term financing. If the business is going to be a sole propri-etorship operating under a name other than your own, it is not required — however, it is an accepted businesses practice — to regis-ter the business name (commonly known as “doing business as” or “dba”) with the Ari-zona Secretary of State’s Trademark and Trade Name Registration Office or the County Recorder of the county in which you will operate. General Partnership A general partnership is an association of two or more persons joined together to carry on trade or business for profit. As in the sole proprietorship, each partner (spouse) is per-sonally responsible for all debts of the firm. Formal partnership agreements should be prepared by an attorney. In general, partner-ship agreements outline each partner’s share of income, gain, loss, deductions, credits and methods to dissolve the partnership under var-ious situations including death of a partner. Advantages of a partnership: • Ease of formation. • Direct rewards. • Broader management base. Disadvantages of a partnership: • Unlimited liability of general partners. • Divided authority in decision-making. • Difficulty in disposing of partnership in-terest. General partnerships transacting business in Arizona under a trade name, or a desig-nation not showing the names of the part-ners, should register the business name “doing business as” or “dba” with the Ari-zona Secretary of State’s Trademark and Trade Name Registration Office or the County Recorder of the county in which the business operates. Limited Partnership This form is similar to the general part-nership with several major differences. Some of these differences include: • At least one person must be identified as a general partner and be responsible for the operation and liability of the organization. • Limited partners are not active man-agers of the business and are not liable for the organization’s debts, etc. If the business is a limited partnership, you are required to register with the Ari-zona Secretary of State’s Trademark and Trade Name Registration Office or the County Recorder of the county in which the business is located. Limited Liability Partnership Limited Liability Partnership, or LLP, is a recent form of business entity in Arizona. For information regarding an LLP, contact an attorney or your local county bar associ-ation. The lack of clear legal precedents could be a disadvantage. If the business is a limited liability part-nership, you are required to register with the Arizona Secretary of State’s Trademark and Trade Name Registration Office or the County Recorder of the county in which the business is located. Limited Liability Company A Limited Liability Company, or LLC, of-fers businesses the protection of a corpora-tion and the single taxation feature of a partnership. Limited liability company advantages: • Limited disclosure of owners. • Limited documentation. • No advance IRS filings. • No public disclosure of finances. • Lower filing fees. • Professional LLCs are allowed. • Can build in buy/sell and owner compen-sation provision — no separate document. • Ease in transfer of ownership. • Can use special allocations between owners. • Can use different classes of owners. • Member (owner) involved in LLC oper-ation insulated from liability. • Can assign management to a nonmember. Limited liability company disadvantages: • Out-of-state business complicates status if the other state does not recognize LLC. • Large number of owners complicates status. • Death, bankruptcy or withdrawal of owner could cause problems. Tax provisions advantages: • No tax at LLC level. • Established and well-seasoned partner-ship rules apply. • No new federal ID number required when converting from partnership to LLC. • No withholding tax on owners’ salaries. • No double tax on appreciation. • More flexible restructuring possible. • No problem with retained earnings. • Easier structuring of debt. Business structures and registration Continued on Page 14B • Step-up in tax basis on death of member or sale of interest. • Less tax on owner’s retirement pay. • Tax-free distribution of assets possible. • Flexibility in contribution of assets. • Member’s “outside” expenses not classi-fied as miscellaneous itemized deduction subject to 2 percent disallowance. Tax provisions disadvantages: • Status of self-employed tax on owners uncertain. • Status of sales tax on owner/lessees un-certain. • Some gain on appreciation may be taxed as ordinary income. • No shifting of appreciation on contribu-tion of property to LLC. To register a Limited Liability Company, domestic or foreign, contact the Arizona Corporation Commission. Corporation A corporation, sometimes referred to as a “C Corporation,” is the most complex type of business organization. It is formed by law as a separate entity, completely distinct from those who own it, and has its own rights and responsibilities. In forming a corporation, potential share-holders offer money and/or property in ex-change for capital stock. The stockholders are the owners of the corporation, and the managers of the firm may or may not be stockholders. Businesses that incorporate in this state must file Articles of Incorporation with the Arizona Corporation Commission. Out-of-state corporations conducting business for 30 days or more in the state must file an Application for Authority to Transact Business as a foreign corporation. Advantages of a corporation: • Separate legal entity. • Limited liability for stockholders. • Unlimited life of the business. • Relative ease in raising capital. • Transfer of ownership stock sale. Disadvantages of a corporation: • Complex and expensive to organize. • Activities limited by the corporate charter. • Extensive regulation and record-keeping. • Double taxation — once on corporate profits and again on dividends. Incorporation of a business in Arizona involves the following steps: 1. Make sure the name you plan to use has been checked with the Arizona Corporation Commission and is available for use by your corporation. 2. Deliver the original and one or more copies of the Articles of Incorporation to the Corporation Commission. 3. Show a street address for the statutory agent (P.O. Box not accepted). 4. File Certificate of Disclosure (included in the incorporation application forms). 5. Pay the required fees. 6. Advise the commission, in writing, of the fiscal year to be used by the corporation. 7. Publish the Articles of Incorporation within 60 days after filing. The Articles must be published in three consecutive issues of a newspaper in gen-eral circulation in the Arizona county of the corporation’s known place of business. Within 90 days after filing, an affidavit of this publication must also be filed with the Arizona Corporation Commission. S Corporation Subchapter S Corporations, sometimes re-ferred to as “S Corporations,” elect not to be subject to federal corporate income tax. The shareholders, however, include their shares of the corporation’s items of income, deduction, loss and credit, or their shares of nonseparately computed income or loss, as part of their personal income. To qualify as an S Corporation, a corporation must meet the following: • It must be based in the United States. • It must have only one class of stock. • It must have no more than 75 share-holders. • It cannot have any nonresident alien as a shareholder. Recent changes in tax laws have liberalized Subchapter S rules; however, current restric-tions must be checked at the time of filing. Check with your attorney and certified public accountant for further information regarding the changes in law. Publications may have outdated information. A corporation that meets all of the above criteria can become an S Corporation if: 1. All shareholders consent to the corpora-tion’s election of S Corporation status. 2. The corporation has a permitted tax year. 3. IRS Form 2553, Election by a Small Business Corporation, is filed to indicate the choice of S Corporation status. The cor-poration must qualify as an S Corporation at the time it files Form 2553. For information on S Corporations, ob-tain IRS Publication 542. To incorporate your business, contact the Arizona Corporation Commission. Foreign Corporation If the business is a foreign corporation (an entity organized under the laws of another state or country), it also must register with the Arizona Corporation Commission. Foreign corporations applying for Au-thority to Transact Business in Arizona must comply with the following at the time of filing: 1. Make sure the name that you are using has been checked with the Arizona Corpo-ration Commission and is available for use by your corporation. The name may be re-served for 120 days while filing. 2. Deliver the original and one or more copies of the Application for Authority to the Corporation Commission. 3. Show a street address for the statutory agent (P.O. Box not accepted). 4. File Certificate of Disclosure (included in application forms). 5. Pay the required fees. 6. Advise the Corporation Commission, in writing, of the fiscal year to be used by the corporation. 7. Publish the Application for Authority within 60 days after filing with the Arizona Corporation Commission. The Articles must be published in three consecutive issues of a newspaper in gen-eral circulation in the Arizona county of the corporation’s known place of business. Within 90 days after filing, an affidavit of this publication also must be filed with the Arizona Corporation Commission. Additional information on incorporating may be obtained from the Arizona Corpora-tion Commission Corporations Division. Tax-Exempt Organizations/ (Nonprofit Corporations) There are more than a dozen different types of corporations approved by the Inter-nal Revenue Service as “Nonprofits.” These organizations usually are developed and operated exclusively for one or more of the following purposes: charitable, reli-gious, educational, scientific, literary, test-ing for public safety, fostering amateur sports competition (under certain restric-tions), or the prevention of cruelty to chil-dren or animals. The organization must be a corporation, community chest fund or foundation. A sole proprietorship or partnership will not qualify. Other organizations that may qualify in-clude: civic leagues; social welfare organiza-tions; labor, agriculture and horticultural or-ganizations; social and recreation clubs; and fraternal beneficiary societies. For a free IRS booklet on this subject, call 800-829-3676 and request publication 557, or visit the IRS Web site at www.irs.gov. To register a nonprofit corporation, con-tact the Arizona Corporation Commission. 14B ■ Entrepreneur’s Edge THE BUSINESS JOURNAL phoenix.bizjournals.com NOVEMBER 21, 2003 Business structures and registration Continued from Page 13B NOVEMBER 21, 2003 THE BUSINESS JOURNAL phoenix.bizjournals.com Entrepreneur’s Edge ■ 15B SOLE PROPRIETORSHIP Advantages Minimum legal restrictions Ease of formation Low startup costs Sole ownership of profits Maximum freedom in de-cision- making Disadvantages Unlimited liability Less available capital Relative difficulty in ob-taining long-term financ-ing No. of owners allowed Only one owner Arizona filing required Trade name registration Formation Nontaxable Taxation issues (Subject to federal in-come tax at entity level) No, tax items reported on Schedule C to personal return Liquidation Not applicable GENERAL/LIMITED PARTNERSHIP Advantages Ease of formation Direct rewards Broader management base Disadvantages Unlimited liability of general partners Divided authority Difficulty disposing of partnership interest No. of owners allowed At least 2; no upper limits Arizona filing required Certificate of limited partnership Formation Nontaxable, unless disguised sale or the partner is relieved from debt Taxation issues (Subject to federal in-come tax at entity level) No, if meet Internal Rev-enue Code tests Liquidation Nontaxable to the extent of a partner’s tax basis LIMITED LIABILITY COMPANY Advantages Single-member LLC treated as sole proprietor for taxation Limited disclosure of owners No advance IRS filings Ease in transfer of ownership Can use different classes of owners Lower filing fees Disadvantages Large number of owners complicates status Death, bankruptcy or withdrawal of owner could cause problems Doing business in other states may require filing individual tax returns in each No. of owners allowed At least 1; no upper limits Arizona filing required Articles of organization Formation Nontaxable, unless disguised sale or the member is relieved from debt Taxation issues (Subject to federal in-come tax at entity level) No, if meet Internal Rev-enue Code tests Liquidation Nontaxable to the extent of a member’s tax basis “C” CORPORATION Advantages Separate legal entity Limited liability for stockholders Unlimited life of business Relative ease in raising capital Transfer of ownership through sale of stock Ability to draw on exper-tise of more individuals Disadvantages Complex and relatively expensive to organize Activities limited by charter Extensive regulation, record-keeping requirements Double taxation of profits and dividends No. of owners allowed At least 1; no upper limits Arizona filing required Articles of incorporation Formation Taxable; however, if the transferors receive only stock and meet the 80 percent control test of the Internal Revenue Code, section 351, nontaxable except to the extent of debt relief Taxation issues (Subject to federal in-come tax at entity level) Yes Liquidation Taxable to both corpora-tion and shareholders “S” CORPORATION Advantages Liability limits for shareholders Unlimited life of busi-ness Disadvantages Restrictions on number of shareholders Limitations on ownership No. of owners allowed At least 1; upper limit is 75 Arizona filing required Articles of incorporation Formation Taxable; however, if the transferors receive only stock and meet the 80 percent control test of the Internal Revenue Code, section 351, nontaxable except to the extent of debt relief Taxation issues (Subject to federal in-come tax at entity level) No, however any shareholder may cause loss of tax status Liquidation Generally nontaxable at corporate level and taxable at shareholder level via flow-through of corporate tax items Comparison of Business Structures Source: Gammage & Burnham PLC 16B ■ Entrepreneur’s Edge THE BUSINESS JOURNAL phoenix.bizjournals.com NOVEMBER 21, 2003 Naming the business is one of the most critical steps a business owner will take. Unfortunately, in the startup process, many people do not consider the impor-tance of name selection and its role in the success of their business. Professional assistance is available from attorneys, public relations or advertising or-ganizations, marketing consultants and trademark agents. Several books and magazine articles are available from local libraries to help you select a name. Terms used to describe a business name in-clude trade name, “doing business as” (dba) and fictitious name. Here are some considerations in selecting a business name: • The name should be easy to understand, spell, pronounce, remember and find in the telephone directory. • Will it depict the image you want for the business? This may include the level of ser-vice, speed, promptness, quality, skill, low cost, timeliness, experience, effectiveness, etc. • Can your product or service be listed as part of the name (such as health food or marketing consultants)? • Using individual letters or an acronym may make the name very difficult to find in the telephone directory. • The terms Corporation, Corp., Incorpo-rated, Inc., LLP, etc., may be used only for businesses registered accordingly. • Unusual spellings such as “Kar” for Car may cause your customer difficulty in find-ing your business name or listing. • Avoid names similar or identical to those used by another business. Once a name is selected, there are three places you can register your business name: • The Arizona Secretary of State’s Trade-mark and Trade Name Office: 1700 W. Wash-ington St., Seventh Floor, Phoenix, AZ 85007. For more information: 602-542-6187, 800- 458-5842, or online at www.sosaz.com. The Southern Arizona Office also accepts Trade Name and Trademark applications and is located at 400 W. Congress, North Building, Room 252, Tucson, AZ 85701. The office also may be contacted by telephone at 520-628-6583. A certificate of registration is mailed in about 10 business days. • The County Recorder will register a busi-ness name. This involves filing a simple form (which may be obtained at a local sta-tionery or legal-forms store) and remitting with the required fee. • If incorporating your business, contact the Arizona Corporation Commission at 602-542-3230 or visit the office at 1300 W. Washington St., Phoenix, AZ 85007. The Arizona Corporation Commission’s Web site can be accessed at www.cc.state.az.us. Additional resources Copyrights Copyright Office, Room 401 James Madison Building Washington, D.C. 20540 202-707-5959 or 800-688-9889 Patents Commissioner of Patents & Trademarks Washington, D.C. 20231 800-786-9199; www.uspto.gov Picking a name is an important step ■ HOW TO HOW Arizona Small Business Association help you grow your business can the ? Business Education Workshops/Seminars Networking Mixers Workers' Comp Dividend Plan Health Insurance Communication Services Financial Service Referrals Monthly Special Interest Round Tables Home-Based Business Council Members Website List Newsletter & Online Membership Directory Small Business Conferences Legislative Representation Purchasing & Lending Fairs Conference Centers Business Resource Referrals 4444 E. Grant Road #119 Tucson, AZ 85712 520-327-0222 Fax 520-327-0440 codowd@asba.com 4130 E. Van Buren St., #150 Phoenix, AZ 85008-6996 602-265-4563 Fax 602-265-3681 info@asba.com Visit us today www.asba.com NOVEMBER 21, 2003 THE BUSINESS JOURNAL phoenix.bizjournals.com Entrepreneur’s Edge ■ 17B How do I file my business name? The registration of a trade name is not legally required in Arizona but is an ac-cepted business practice. Trade names, also known as business names and dba’s, can be filed with the Office of the Secretary of State. Although the office will search its data-base for similar names on file, we recom-mend that customers follow the guidelines found at the Phoenix Public Library before submitting the trade name application. Registration forms are available to down-load at www.sosaz.com. The filing fee is $10 and must be in the form of a check, cashier’s check, money order or cash. Currently, credit-card payments are not accepted. How do I search the Secretary of State database for a business name? The Office of the Secretary of State can conduct a preliminary name check either over the phone (602-542-6187) or via e-mail (trades@mail.sosaz.com). It is recommended that you wait to order stationery or other office supplies until you receive your trade name certificate in the mail. Corporations and Limited Liability Com-panies should check name availability with the Arizona Corporation Commission at 602-542-3230. Construction companies should check name availability with the Registrar of Contractors by calling 602-542- 1525. Mortgage companies should check with the Department of Banking by calling 602-255-4421. How do I get a federal trademark? To file for a federal trademark, contact the U.S. Patent and Trademark Office at 2021 Jefferson Davis Highway, Arlington, VA. General information requests should be ad-dressed to General Information Services, U.S. Patent and Trademark Office, Crystal Plaza 3, Room 2C02, Washington, D.C. 20231. Questions regarding federal trademark registration can be answered at 800-786- 9199 or on the Internet at www.uspto.gov. Arizona residents also may conduct fed-eral trademark searches at the Noble Sci-ence and Engineering Library at Arizona State University, a U.S. Patent and Trade-mark Depository Library (www.asu.edu/ lib/noble/ptdl). For more: 480-965-6164. What is the statutory authority? Statutory authority for the registration of trade names can be found in Arizona Re-vised Statutes §44-1460 through §44- 1460.05. What if my trade name is rejected? The general rule governing trade name ac-ceptability is found in A.R.S. §44-1460.01(B). It states “The Secretary of State shall not file an application for the registration of any trade name, title or designation if it might mislead the public, or is not readily distin-guishable from names, titles or designations previously registered under the provisions of this article.” Are there any additional business-related functions offered by the Secretary of State? In addition to the initial registration of trade names, the Office of the Secretary of State is the centralized filing office for the registration of Trade/Service Marks, Lim-ited Partnerships, Charitable Organiza-tions, Telephone Solicitors, Contracted Fundraisers, Uniform Commercial Code fil-ings, Athlete Agents, Intergovernmental Agreements and Public Meeting Notices. The agency also provides Notary Public Commissions and the maintenance and publishing of the Administrative Code and Register. Forms and filing information are available online at www.sosaz.com or by calling 800- 458-5842. Trade Names ■ Customers are encouraged to file descriptive names. There are roughly 350,000 names registered at the state level as trade names, trade-marks, partnerships, LLCs or corpora-tions. ■ Adding a city, state or direction does not create a more descriptive name. ■ Adding names such as corporation, company, services, manufacturing, as-sociates, store, enterprises, associa-tion, etc., to the end of a name does not create a more descriptive name. ■ “Made-up” names (words that are not found in a dictionary) should not be created for the purpose of a more descriptive name. ■ The Office of the Secretary of State suggests that customers perform ex-tensive, independent research before submitting an application for registra-tion of a trade name. ■ The Office of the Secretary of State does not warrant or guarantee that chosen names will not conflict with ex-isting business names. ■ In the event of a name conflict, it is advisable to seek legal counsel since the Office of the Secretary of State is a filing agency and not authorized to resolve legal matters involving trade name conflicts. ■ Send a check or money order to: Secretary of State Business Services — Trade Names 1700 W. Washington St., Seventh Floor, Phoenix, AZ 85007 For a trade name application, see Page 72. Filing guidelines By mail: Office of the Secretary of State 1700 W. Washington St., Seventh Floor Phoenix, AZ 85007 602-542-6187 or 800-458-5842 (state of Arizona only) In person: Secretary of State Customer Service Center 14 N. 18th Ave. (southwest corner of 18th Avenue and Adams), Phoenix, AZ 85007 Hours: Monday-Friday, 8 a.m. to 5 p.m., except holidays or Office of the Secretary of State 400 W. Congress, Ste. 252 Tucson, AZ 85701 Where do I file? 18B ■ Entrepreneur’s Edge THE BUSINESS JOURNAL phoenix.bizjournals.com NOVEMBER 21, 2003 Below are guidelines intended to help you develop and write a business plan. Your business plan is very im-portant to your success. It represents your “road map” toward a successful venture. These guidelines do not address every as-pect of every possible business plan. You should consider more questions than those that are posed in each section. Be sure to ask many questions — your success depends on the completeness of your planning process. Each numbered section below (I, II, III, etc.) should start a new section of your plan, while other lettered items within each section will each be one to three paragraphs long. I. Title Page The title page should be double-spaced, horizontally centered and positioned just above the center of the page. It should con-tain the following items: business name, ad-dress, phone number and owner(s) name(s). II. Table of Contents The table of contents should list the title of each section of the document and indicate the page number where each is located. It also should list specific support items (ap-pendices) by name. This page will be done last, since it requires the entire document as input. It allows the reader to quickly locate specific sections. III. Business Concept or Executive Summary This section should be a one-page expla-nation of what your business is and its com-petitive advantage. Here you will provide a clear description of the industry in which you are competing and a precise explanation of your business’ unique qualities that set it apart from others that are competing for the same customers. This section should include key points from marketing, operational and financial plans. Your explanation should answer these questions: • What does your business do? • In what general market does your busi-ness compete? • What quality/price image will it have? • What customer needs are met? • What makes it unique from competition? • Why will it be financially successful? IV. Marketing Plan This section should contain a narrative de-scription of these factors: A. Products/Service • What needs/benefits are sought by your customers? • Specifically how does your product meet those needs/benefits? • How is your product/service unique from the competition? • What customer services do you provide to support the central product? B. Target market First, determine if your focus is on con-sumers (end-users) or other businesses. Then tailor your responses to the appropri-ate category below. • What needs/benefits are sought by your customers that your product/service satisfies? • When and under what circumstances does your customer buy your product or service? • Describe the volume and frequency of your customer’s purchases. • Based on available data, what is the ex-pected volume of your target market? • Of that target market, what is the pro-jected volume of actual paying customers? • Describe your customer base. Consumers: It is important for you to de-velop a clear, mental picture of your ideal customer. Describe your potential customers using the following factors: age, sex, income, edu-cation, location, occupation, interests, buy-ing habits, and goals and aspirations. Businesses: If selling to a business, your description should include: type of busi-ness; size of business; priority placed on purchasing your product; projected image of the business; markets that the business services; its trade organizations and mem-berships; and the trade publications read. B. Competition A description of your competition should answer the following questions: • Who are your major competitors? • Why are they successful? • What alternatives are there to your product? • How do alternatives impact your sales? • What distinctive differences separate you from your competitors? • Why should customers leave your com-petitors to choose your product? • What market share do you expect to get? C. Location analysis Describe your business location and how it will enhance the sale of your product or service. Your description should answer the following questions: • What strategic advantages do you have at this location? A solid business plan is a must Continued on Page 19B NOVEMBER 21, 2003 THE BUSINESS JOURNAL phoenix.bizjournals.com Entrepreneur’s Edge ■ 19B • Is there opportunity for expansion? • What are the neighboring businesses? • Do they complement/detract from yours? • Are renovations needed? At what cost? • What is the zoning classification? • Is the neighborhood stable, changing, improving, deteriorating? How? • How is customer access, parking, etc.? NOTE: Include in the appendix a photo-graph of the building, a drawing of the im-mediate area showing road access and iden-tity of adjoining businesses and a drawing of the floor plan of your business. D. Price determination A description of the price structure for your product or service will answer the fol-lowing questions: • How does the unit cost of your product compare to the relative value seen by the customer? • How does your price compare with the competition’s? • Why will customers pay your price? • What image will this price project? • What special advantages do your cus-tomers get that is included in the price? • Will you offer credit terms? E. Marketing approach A description of your marketing effort should answer the following questions: • What are the test market results? • Where do your customers seek informa-tion about purchasing your product/service? • How will your image be clearly and con-sistently conveyed to potential buyers? • Which media are most suitable? • How will you evaluate the effectiveness of each advertising and promotional effort? • How will you use/evaluate a sales staff? V. Management Plan or Operational Plan This section contains a description of who will run the business and how they will do it, including the following: A. Management team A description of how the business will be managed will answer these questions: • What business management background do you have? • How will that drive the business? • How is the experience of key people re-lated to this type of business? • What legal form will you use — corpora-tion, partnership, proprietorship, etc.? • Who does what? Who reports to whom? • What resources are needed and who will provide them (accountant, lawyer, etc.)? NOTE: Include in the appendix the résumés of key personnel. B. Employee relations A description of your methods for hiring, training and communicating with your staff will answer these questions: • What are your personnel needs? • What skills will be required? • How will you hire and train? • What salary/benefits will be provided? • How will you determine wage increases? • What personnel policies will be provided? C. Operational controls A description of the kinds of management systems and how they will be used will an-swer these questions: • What is your production capacity? • What operating advantages do you have? • What elements are key to your success? • What will be indicators of success? • How will you monitor these factors? • What hazards do you anticipate for your business? What protection and/or alternate plans do you have? • What policies will you establish for the operation of your business? VI. Financial Plan A description of how your business will be financed and how you will maintain a sound financial condition will answer the following questions: A. Current funding requirements • How much money will be needed for starting your business? • What will be the sources of startup capital? • What business and personal assets will be pledged as collateral? B. Use of funds • How will the money be spent (working capital, capital expenditures, etc.)? • How will borrowed funds make your business more profitable? C. Long-range financial strategies • How will you liquidate your investors’ position? • What terms of repayment are feasible? • What will you do if repayment cannot be accomplished as planned? D. Financial statements To support this section, several financial statements will be required, such as the fol-lowing: • Personal financial statement of owner. • Business startup costs. • Pro forma cash flow analysis (expected). • Balance sheet (actual or proposed). • Income statement (actual or proposed). • Capital equipment list. VII. Strategic Plan It is very important to include a descrip-tion of where you want your venture to be in the next few years and how you intend to achieve those goals. This strategic plan should focus on years two through five and include descriptions of the following items: • Strengths within your organization. • Weaknesses within your organization. • Opportunities available to you. • Threats impeding you. Using these four factors, you should de-scribe strategies that use your strengths to take advantage of opportunities and over-come threats; and strategies to reduce weak-nesses and avoid threats to your business. The strategies should identify intermedi-ate goals (yearly) and the marketing, man-agement and financial resources that will be used to achieve these goals. For assistance in preparing your business plan, visit www.azcommerce.com and click on Small Business Services. Tips for writing your blueprint Consider the following when constructing a business plan: ■ The business opportunity is pre-sented in a clear, exciting manner. ■ The entrepreneur understands that projections are, at best, hopeful guesses and tries to base the projec-tions on realistic assumptions. ■ The entrepreneur estimates, as much as possible, the pitfalls of the business as well as its strengths. ■ The plan is carefully proofread and edited until it does not contain any errors in grammar or math. ■ The entrepreneur knows the plan by heart before making a presentation to a potential lender or investor. ■ The company has taken the time to study and understand its competitors and can address their strengths and possible weaknesses. ■ The plan contains enough informa-tion to tell a complete story about the company, and it is presented in a concise, tight writing style. ■ The plan does not make exagger-ated claims about the product or the management. ■ The plan shows why the company and its products are different and significantly better than what is out there in the marketplace. Source: The Capital Connection, www.capital-connection.com Continued from Page 18B 20B ■ Entrepreneur’s Edge THE BUSINESS JOURNAL phoenix.bizjournals.com NOVEMBER 21, 2003 Economic Development Information Centers: Apache Junction Public Library 480-474-8555 Academic Library Arizona Western College/NAU-Yuma 928-344-7777 Casa Grande City Library 520-421-8710 Chandler-Gilbert Community College Learning Resource Center 480-857-5138 Chandler Public Library 480-782-2803 City of Mesa Library 480-644-3721 Clifton/Greenlee County Public Library 928-865-2461 Eastern Arizona College Library 928-428-8304 Estrella Mountain Community College Library 623-935-8072 Flagstaff City-Coconino County Library District 928-779-7670 Florence Community Library 520-868-9471 Glendale Public Library 623-930-3530 Globe Public Library 928-425-6111 Maricopa County Library District 602-506-2957 Mohave Community College Library 928-453-5809 Mohave County Library District 928-692-2665 Nogales City-Santa Cruz County Public Library 520-287-3343 Northland Pioneer College Library Learning Resources Center 928-524-7320 Peoria Public Library 623-773-7556 Phoenix Public Library 602-262-4636 Prescott Public Library 928-777-1500 Scottsdale Public Library 480-312-2476 Sierra Vista Public Library 520-458-4225 Tempe Public Library 480-350-5511 Tucson-Pima Library 520-791-2647 Yavapai College Learning Resource Center 928-776-2265 Yuma County Library District 928-782-1871, ext. 106 Visit your local library, it’s a great resource for starting or running a busi-ness. Librarians will help you find information on every phase of business ownership, information on writing the business plan, and electronic databases where you can research industries and competitors. The library provides access to sub-scription databases you can use in the library, office or home when you obtain a library card and a PIN number. (Check your local library for details). In addition, libraries provide free ac-cess to the Internet. Many libraries pre-sent free programs, workshops and book lists on business topics. For a list of Arizona libraries, visit the Arizona Library Association Web site at www.azla.org/azinfo/libraries.html. Library Resources Visit your local library Developing a business plan? Tracking industry and market trends? Re-searching other factors that may af-fect the success of your enterprise? Start your research on these and other key business development issues with your local Economic Development Information Center (EDIC) library. The Arizona State Library, Archives and Pub-lic Records was awarded federal grant funds to initiate the EDIC program in 1992. There cur-rently are 27 EDICs based in public and com-munity college libraries throughout the state. EDICs provide the business community and li-brary users with: • Business information from a core collec-tion of business reference materials. • Research experts familiar with the local economy and the community. • Referrals for business information and as-sistance. • Database searching and Internet access, assistance and training. Through a statewide pilot project, the Ari-zona State Library, Archives and Public Records recently enhanced EDIC services by providing an online business database that covers the latest information from top news-papers such as the New York Times, Wall Street Journal and USA Today. EDIC library customers can use this database for identifying market and industry trends, tracking potential customers and competitors, and analyzing business strategies. For more: 800-255-5841, 602-542-5841, or contact one of the EDIC libraries listed below. NOVEMBER 21, 2003 THE BUSINESS JOURNAL phoenix.bizjournals.com Entrepreneur’s Edge ■ 21B BY SUSAN BROOKS Special to The Business Journal So, you want to be a business owner. You think you have an entrepreneurial spirit. You are sure that now is your time to be in charge of your own destiny. You start with baby steps, getting valida-tion from family and friends, guidance from advisers. But you need a business plan. You need to know your costs — down to the penny. You need a compassionate banker, a disciplined CPA and an over-protective attorney. Now you think you’re ready? Whoa! Instead of focusing on what’s next, you have to ask yourself what’s first. A pas-sion to serve, whether it’s cookies or wid-gets, must start with a vision — your vision. Who is your customer? Who do you want to serve, and how? Where do you see the greatest need, the hole in the marketplace that your product/service can fill better than anyone else? What are the pictures in your mind that define your product/service: your company name and logo, your merchandis-ing and image and your core values that de-fine and differentiate your product/service from all the others already in the market-place? When you focus on vision, you soon realize you have opinions about things you didn’t even realize mattered before. Having been in the trenches as a business owner for more than 25 years, I’ve learned these lessons. Knowing how to grow a busi-ness, how to best serve customers and em-ployees, and how to keep integrity of the vi-sion — these are the questions that have kept me awake all hours of the night and, fortunately, have taught me lessons that now help me guide budding entrepreneurs back into the light of day. The integrity of your vision always is being tested. There are several non-nego-tiable caveats in my vision that I held onto tightly. Honoring my family history and the integrity of our recipes to use fresh and real ingredients meant that our cookies have a limited shelf life. I often was advised to add preservatives to our cookies. No way, no how! Our name, Cookies from Home, declared this truth from the get-go. Our niche had to focus on immediate munch-ing, emphasizing the quality and freshness as an advantage rather than a limitation. Our cookies are homemade by people, not ma-chines, and every step of our process involves the human and “back to basics” philosophy. Vision defines your passion. My vision was to make our world a better place by treating customers to the best chocolate chip cookies and service. Everyone loves cookies, right? Yes, but if I took my limited dollars and tried to market to “everyone,” I would have disappeared long ago with all the other startup com-panies that failed. I needed to be much more specific, much more defi-nite about the cookie lovers I wanted to serve. Look at Southwest Air-lines. Its niche is clearly defined: cheap fares and lots of them. No empty promises of gourmet meals and first-class seats. When customers book a Southwest flight, they “buy in” to the cattle calls and peanuts. Southwest Airlines knows what it does best and doesn’t try to be what it is not. Your vision holds your truths. When you stay focused on that, your next step and bot-tom- line direction become clear. This is your vision, your destiny, which owns lessons learned, triumphs celebrated and every ounce of risk that made it happen. Susan Brooks, co-founder and president of Cookies From Home, also is a professional speaker and consultant. She can be reached at www.servesyouright.net or tobserved@aol.com. Vision, first and always Susan Brooks ■ Daily business headlines sent to you via e-mail Get The Phoenix Business Journal’s NEW e-mail headline service for breaking local business stories every day at 3pm. Read the news before the next day’s morning paper. It’s FREE in your e-mail. To sign up, point your browser to phoenix.bizjournals.com and click on E-MAIL ALERTS to get news that’s strictly business, strictly local. 22B ■ Entrepreneur’s Edge THE BUSINESS JOURNAL phoenix.bizjournals.com NOVEMBER 21, 2003 CHAPTER 2 Location & Regulations 2• BY SUSAN MERCER HINRICHS Special to The Business Journal Location, location, location. Like real estate, the 3L’s apply in busi-ness as an entrepreneur decides where to physically establish an enterprise. Three other words — regulations, licens-ing and permitting — also are key to start-ing a business off on the right foot and growing it into a thriving enterprise. Whether you’ve launched a home-based business or staked out a promising com-mercial site, you’ll need to comply with li-censing and permitting requirements. A business owner looking at a downtown redevelopment site may wrestle with leasing or buying the property, for example. That’s where the Small Business Develop-ment Center can come into focus. Mike York, the SBDC’s state director, said em-ployees there can help people understand commercial leasing. “It’s not astrophysics; it’s just business,” York said. “But it can be pretty intimidating.” He said an SBDC counselor can help translate commercial real estate jargon and forms for a business person who is deciding whether to rent or buy. Economic development officials stand as a ready source of information, too. Cities and counties may offer credits or incentives for businesses choosing to locate within special sites, sometimes known as enterprise zones or development areas. In southwestern Arizona, the cities of Yuma, Wellton, Somerton and San Luis have teamed with Yuma County and dozens of local businesses to form the Greater Yuma Economic Development Corp. According to the GYEDC Web site, www.gyedc.org, all of Yuma County is designated as an enterprise zone — an area offering income-tax incen-tives for businesses choosing to locate there. Miguel Bravo, a GYEDC business develop-ment representative, said the group often has contact with small and light-manufacturing companies from Southern California where owners are looking to move to a more af-fordable area. In talking with prospective relocators, Bravo said the GYEDC looks at things such as the number of jobs to be created, starting wages offered, and benefits to be rendered as the public-private partnership members negotiate to offer relocation incentives. “Our goal is to provide all the information they (prospective businesses) need and as-sist them,” Bravo said. Likewise, when it comes to navigating the process for permitting and licensing, the SBDC’s York said workers there can help, too, whether through the organization’s on-going workshops and seminars statewide, or a one-on-one question-and-answer basis. Arizona is a “virtual nirvana to do busi-ness in,” York said. Despite that, he said li-censing and permitting could — and should — be easier to navigate. According to York, the SBDC annually counsels about 3,500 people in Arizona on regulatory and licensing matters, among other issues. Over the past 15 years, the SBDC has assisted some 100,000 people in various capacities through its ongoing sem-inars and workshops statewide. Individualized business counseling is of-fered without cost, York said. Workshop sessions can involve a nominal charge. Terree Wasley, vice president of entrepre-neurial services at the Greater Phoenix Chamber of Commerce, agrees with York that the gauntlet of permits for establishing and operating a business can be over-whelming. Regulatory issues “are a problem,” said Wasley, citing business-owner frustration with city regulations and taxation matters. One particularly troublesome area now, she said, is enforcement of municipal smoking bans in eateries. The Greater Phoenix Chamber also acts as an ongoing legislative lobbying force to make regulations and taxation issues more business-friendly, Wasley said. Another regulatory information source is online. A visit to the Arizona Department of Revenue’s Web site, www.revenue.state .az.us, gives entrepreneurs a comprehensive picture of what startups and growing com-panies need to know about building a busi-ness in Arizona. One link on the home page leads to gen-eral small-business information; another lists all the organizations and activities that are required to obtain an employer identifi-cation number; and another lists a guide, ti-tled A-Z for Taxes for Small Business, where tax obligations are outlined. Once armed with the necessary permits and licenses, entrepreneurs take another step toward fulfilling their independent business dreams. NOVEMBER 21, 2003 THE BUSINESS JOURNAL phoenix.bizjournals.com Entrepreneur’s Edge ■ 23B The choice of a location may have a profound effect on the success of your business. Therefore, this aspect of your planning should be given great consideration. Some of the items to re-search and assess include the following: Home-based Businesses must comply with the same li-cense and permit requirements as a com-mercial location, including applicable sales tax licenses, trade or professional licenses, residential zoning and homeowner as-sociation rules. Among the factors to consider in obtaining approval is whether you will increase traffic substan-tially, the ease of access for your clients and suppliers, and if there is any pollution cre-ated, including excessive noise. Buy or lease One of the first decisions you must make is whether to purchase property and con-struct a new building, modify an existing building or lease a site. There are many issues to consider in mak-ing this decision. You should consult with an attorney, accountant and real estate pro-fessional for assistance and information. Client base Where are your current and targeted cus-tomers located? Use a map and pins to iden-tify client locations. This information will assist you in selecting a site. Traffic count Determine the traffic passing potential sites. You can make this study or, in many cases, the city, county or state traffic engi-neers will provide official counts of auto traffic. Commercial real estate agencies often have considerable research data on this subject. Which side of the street Some retail products and services are most attractive to customers on their way to work. Examples include coffee and pastry shops. Some chambers of commerce have very detailed studies of traffic, existing business data and other valuable information. Con-tact the local chamber for additional infor-mation. Demographics What changes are taking place in that area? Is the population age shifting? What is the income level? Does the local popula-tion fit your target market profile? The U.S. Census Bureau provides information on these and other related subjects. The tele-phone number is 800-253-1882. The Web site is: www.census.gov. In addition, the Ari-zona Department of Commerce, Commu-nity Development Division Web site, www .azcommerce.com, provides community and county profiles. Local chambers of commerce and libraries also usually have information on area demographics. Type of site Commercial locations include individual or stand-alone buildings, neighborhood strip centers with a few stores, power cen-ters with a major tenant and several com-plementary businesses, and regional malls, usually with three or more major anchor stores. Nearby stores Are neighboring stores compatible or complementary to your business? Will they help attract business to your establishment? Parking Does the site provide adequate parking for your customers and employees? Will your customers have to compete with employees of the area businesses to find a place to park? Is the parking lot easy to enter and exit? What is its overall condition? Is it well illuminated at night? Is adequate parking provided for handicapped customers? Condition of the building Carefully check the condition of the build-ing and calculate the modifications re-quired to meet your needs. Do the building and property meet current zoning and other local requirements? Has the owner main-tained the building and property or is the lo-cation in need of repair? What do other ten-ants say about the owner’s willingness to make repairs and do preventive mainte-nance? Total cost of the lease Cost of the lease is calculated a number of ways. Some items to consider include: • Exterior building maintenance. • Tenant improvements. • Common area expenses. • Insurance. • Utility costs. • Security services. • Taxes. • Flat lease rate and/or percentage of your business revenue. • Increase in lease based on changes in the consumer price index. Terms of the lease Lease terms can be confusing to the busi-ness owner. Many commercial brokers pro-vide a glossary of terms commonly used in leasing space to businesses. Other consider-ations include dispute resolution, required hours open for business, and whether future expansion is possible at reasonable rates. History of the site Why is the potential location available? How long has the site been vacant? What caused the previous tenant to leave? If sev-eral businesses have failed at that site, you may wish to carefully consider your odds for success. Professional representative You should obtain professional assistance in negotiating a commercial lease. Leasing agents or brokers fall into two categories — those who represent building owners and those who represent tenants. Lease negotia-tions may directly affect the success or fail-ure of your business. You should obtain the professional assistance of your own broker, attorney, accountant, insurance agent, banker and architect. While many of these items may not seem important when you are beginning to look for a site, they are extremely important for the long-term success of your business. The right location makes a difference ■ HOW TO 24B ■ Entrepreneur’s Edge THE BUSINESS JOURNAL phoenix.bizjournals.com NOVEMBER 21, 2003 Small businesses performing services may need to be licensed, bonded and/or insured. That is especially true for commercial and residential construc-tion contractors. A bond or surety is a third-party obligation promising to pay if a vendor does not fulfill its valid obligations for work under a con-tract. It is not an insurance policy, said Brian Pugh, surety-underwriting manager for CNA Surety in Phoenix. “It’s a financial guarantee that a vendor will honor a business contract,” he said. “In-surance is a two-party contract where the contractor buys a policy that pays for claims or losses.” With a surety, the bond guarantees the busi-ness is going to complete the project. If the business fails, the surety company guarantees fulfillment of the business’ obligation, then the vendor pays back the surety company. So it’s more of a credit function, he said. Although there are various types of bonds, a few of the most common are: • Taxpayer bond: Contractors that must be licensed with the Registrar of Contrac-tors or licensed as dealers of manufactured housing (mobile homes) must post a bond with the Department of Revenue before a Transaction Privilege Tax license will be is-sued, unless the contractor qualifies for an exemption from the bonding requirement. • Performance bond: Guarantees that a business will perform work in accordance with the terms of a contract. • Bid bond: Guarantees that a business will perform the work if they win a bid. • Indemnity bond: Promises to reim-burse loss incurred if the business fails to perform, or if the business fails to pay other vendors or subcontractors in the perfor-mance of the contract. • Payment bond: Promises a business will pay all subcontractors and material providers used in the performance of the contract. According to Alan Felber, chief of licens-ing for the Arizona Registrar of Contractors, license bonds are required by statute in Ari-zona for construction contractors to obtain or renew a license. The Registrar of Contractors promotes quality construction by Arizona contractors through a licensing and regulatory system designed to protect the health, safety and welfare of the public. Bonds may be obtained from an insurance agent or an insurance company authorized by the Arizona Department of Insurance to operate in Arizona and issue contractor’s li-cense bonds. Since bonds do not pay for property dam-age or personal injury on the job, business owners also need to consider health and life insurance, as well as workers’ compensa-tion coverage. In Arizona, all businesses that have even one part-time employee must, by law, carry work-ers’ compensation insurance, and it must be in place before the first person is hired. The Industrial Commission will close down those operating without workers’ compensa-tion insurance and charge them a fine, said Chris Kamper, vice president of claim ser-vices for the State Compensation Fund (www.statefund.com). At present, the penalty ranges from $1,000 to $10,000 depending upon the number of prior violations. “When a business doesn’t have insurance and a worker gets hurt on the job, the com-pany loses its exclusive remedy doctrine,” Kamper said. “The doctrine provides that if the employer has workers’ comp coverage, then the injured worker’s sole remedy for a workplace injury is workers’ compensation benefits, which in-clude medical benefits and lost wages.” The State Compensation Fund is a program operated on behalf of the state of Arizona. Without it, the employer loses the exclu-sive- remedy protection, and the injured worker can elect to either file a workers’ comp claim, or sue the employer for tort damages such as lost wages, medical bills and pain and suffering in Superior Court. “So, in addition to all the other coverages necessary for operating a small business, get your workers’ comp insurance in place,” Kamper says. “It’s extremely important.” Protect your business Make sure you’re licensed, bonded and insured NOVEMBER 21, 2003 THE BUSINESS JOURNAL phoenix.bizjournals.com Entrepreneur’s Edge ■ 25B BY SCOTT CLARK Special to The Business Journal If you own a business, you eventually can expect an unannounced visit from an OSHA inspector. These visits aren’t social. These inspectors are charged with inspecting your business for potential health and safety violations, and they will expect access to the entire facility. OSHA stands for Occupational Safety and Health Administration. It is organized within the U.S. Department of Labor and is charged with setting and enforcing workplace safety and health standards. OSHA inspectors conduct periodic, random inspections of businesses. The agency also fo-cuses on businesses where there have been se-rious accidents or reports of imminent job dangers, accidents or illnesses. In fiscal year 2001, federal and state in-spectors conducted about 92,000 inspec-tions, found 220,000 workplace violations and assessed more than $156 million in penalties. Of this total, 82 percent were clas-sified as “willful” or “serious” violations. However, if you have a small business, have had no previous violations, have not willfully violated the regulations and demonstrate good faith in correcting the deficiencies, penalties may be reduced or eliminated. OSHA has four primary strategies: 1. Lead-ership — leading the dialogue on occupa-tional safety and health; 2. Strong, fair and effective enforcement; 3. Outreach, education and compliance assistance — providing training and ed-ucation materials; and 4. Partnerships — currently numbering more than 900. If your business has 11 or more employees, you are required to keep records of work-related injuries or ill-nesses. However, work-places in low-hazard in-dustries such as retail, service, finance, insurance and real estate are exempt from these record-keeping requirements. All employers must post the federal (or state) OSHA poster to provide their employees with information on their safety and health rights. You may order a printed copy from OSHA Publications by calling 800-321-OSHA, or you can download and print a copy from the OSHA Web site home page at www.osha.gov. The OSHA Web site contains a wealth of information on various health and safety topics, so it is well worth a visit. In fact, if you as an employer would like to secure help from OSHA to fix hazards in your workplace, you may wish to contact the OSHA Consultation Program Office in your state for free on-site assistance in identify-ing and correcting hazards or setting up safety and health programs. You also can contact the OSHA Area Of-fice nearest you to speak to the compliance assistance specialist about training and ed-ucation in job safety and health issues. Another option is OSHA Advisors, interac-tive software that walks you through spe-cific OSHA standards for things such as as-bestos or help identifying potential hazards throughout your workplace. All of this information is available on the OSHA Web site, as well as additional infor-mation on specific OSHA topics. If you are a worker with a safety concern, you can call the nearest OSHA Area Office or you can file a complaint online through the OSHA Workers’ Page. If you own a business, it’s only a matter of time before the OSHA inspector comes calling. Scott Clark is a business consultant and columnist based in Cedar Rapids, Iowa. He can be reached at www.saclark.com. Be prepared for a visit from OSHA Scott Clark ■ BY TOM R. REX Special to The Business Journal The old Standard Industrial Classifica-tion (SIC) has been replaced with the new North American Industry Classi-fication System (NAICS). The SIC first was created in the 1930s and periodically was revised over five decades. NAICS represents a significant change in the classification of industries. The first data released using NAICS in 1999 was the result of the 1997 Economic Census. The phase-in of NAICS for other federal govern-ment programs is nearly complete. NAICS was created as a joint effort be-tween Canada, Mexico and the United States. Differences in production processes largely act as the demarcation between in-dustries. Special attention was given to emerging industries, service industries in general and industries engaged in the pro-duction of advanced technologies. The goods/services distinction is not explicitly reflected in NAICS, but five of 20 sectors are largely goods-producing while the other 15 are entirely services-producing. Ten (one-digit) divisions comprised the SIC. These were subdivided into two-digit major groups, three-digit industry groups and four-digit industries. NAICS consists of 20 sectors progressively subdivided into three-digit subsectors, four-digit industry groups and five-digit indus-tries. The definition of most five-digit in-dustries is the same in the United States, Mexico and Canada. In some cases, a sixth digit is added to U.S. industries. As implied by the greater number of digits, NAICS provides more detail on a larger number of economic activities. In the United States, 1,170 industries are defined, 358 of them being new industries. As NAICS has been phased in, discontinu-ities in the historical series have occurred in some cases. For example, nearly one-third of the former four-digit SICs are not deriv-able under NAICS. The table on Page 26 compares the SIC di-visions to the NAICS sectors. The SIC’s transportation, communications and public utilities (TCPU) division was split into three NAICS sectors. Similarly, the SIC’s FIRE (fi-nance, insurance and real estate) division was divided into two NAICS sectors. The largest SIC division — services — has been split into seven sectors. The last NAICS sector shown in the table does not correspond to any SIC division. For more: 800-756-2427 or www.census .gov/naics. (See Page 26B for a related chart.) Tom R. Rex is research manager at the Cen-ter for Business Research at the L. William Seidman Research Institute at Arizona State University’s W.P. Carey School of Business. He can be reached at 480-965-5476. Industry classifications have changed The OSHA Web site contains a wealth of information on various health and safety topics. 26B ■ Entrepreneur’s Edge THE BUSINESS JOURNAL phoenix.bizjournals.com NOVEMBER 21, 2003 SIC Division NAICS Sector Differences from SIC to NAICS Agriculture, Forestry and Fishing Agriculture, Forestry, Fishing and Hunting Logging was transferred to this NAICS sector from the SIC manufacturing division. Parts of the SIC Agriculture Services major group were shifted to other NAICS sectors. Mining Mining Very few changes were made. Construction Construction The NAICS definition is nearly the same as in the SIC. Manufacturing Manufacturing The SIC printing and publishing major group was moved to the NAICS information sector. Logging was shifted to the agriculture sector. Numerous other minor additions and deletions were made. Transportation, Communication and Public Utilities (TCPU) Transportation and Warehousing Except for parts of the SIC transportation services major group, which were shifted to other NAICS sectors, the transportation portion of this SIC division closely corresponds to the NAICS sector. Information The portion of the TCPU division relating to communications makes up part of this new NAICS sector. The information sector groups industries that primarily create and disseminate a product subject to copyright. In addition to communications, it consists of the SIC major groups of printing and publishing part of business services and most of motion pictures. Utilities The public utilities portion of TCPU is very similar to the NAICS sector Wholesale Trade Wholesale Trade Few changes were made, but portions of the SIC division were assigned to the NAICS retail trade sector. Retail Trade Retail Trade The SIC eating and drinking places major group was moved to the NAICS accommodation and food-services sector. Finance, Insurance and Real Estate (FIRE) Finance and Insurance The finance and insurance major groups from the SIC are very similar to the NAICS finance and insurance sector. Real Estate and Rental and Leasing Various types of rental activities, such as rental of automobiles and consumer goods, were transferred from the SIC services division to this NAICS sector. Real estate is defined nearly the same in NAICS as in the SIC. Services Professional, Scientific and Technical Services This new NAICS sector comprises establishments in which human capital is the major input. It consists of the SIC major division of legal services, engineering, accounting, research and management services; parts of business services and various other SIC industries. Administrative and Support, and Waste Management and Remediation Services Routine support functions provided to other companies, such as employee-leasing services and janitorial services, make up this new NAICS sector. It was formed from portions of many SIC major groups. The most significant were business services, repair services, transportation services and public utilities. Educational Services This NAICS sector closely corresponds to the SIC educations services major group. Health Care and Social Assistance Nearly all of the SIC health services and social services major groups combine to form this NAICS sector. Arts, Entertainment and Recreation Most of this NAICS sector comes from the SIC major groups of amusement and recreation services, museums, art galleries and gardens. Accommodation and Food Services The SIC major groups of eating and drinking places, and hotels and other lodging places form most of this NAICS sector. Other Services This NAICS sector consists of the combination of most of several SIC major groups, including personal services, automotive services, miscellaneous repair services, membership organization and private households. Public Administration Public Administration Few changes were made. — Management of Companies and Enterprises This new, small NAICS sector includes part of the SIC holding companies major group (part of FIRE). The rest of this sector is made up of auxiliaries, which were spread throughout all SIC divisions. (Auxiliaries performed management and support services for other establishments of the same enterprise.) Source: Center for Business Research, L. William Seidman Research Institute, College of Business, Arizona State University from U.S. Office of Management and Budget Industry classification system at a glance NOVEMBER 21, 2003 THE BUSINESS JOURNAL phoenix.bizjournals.com Entrepreneur’s Edge ■ 27B CHAPTER 3 Finance & Accounting 3• BY SUSAN MERCER HINRICHS Special to The Business Journal Armed with a solid busi-ness plan and seed money to get started, entrepreneurs can begin building a successful busi-ness. But many business owners eventually will face the question of where to turn for continued funding to keep their businesses grow-ing strong. This is where a sound busi-ness plan comes into play. A business plan establishes the framework for a new busi-ness. Part of that plan should include projected balance sheets and income and cash-flow statements. It’s important that those early-stage projections take into account the likely need for further capital infusion for con-tinued business growth. But where can funding be found? At the earliest stage of a startup, entrepreneurs can use personal savings, invest-ments and even revolving lines of credit, such as credit cards, to get their enterprise up and running. Another be-ginning step is to tap “friends, family and fools,” said Terree Wasley, the vice president of entrepreneurial services at the Greater Phoenix Chamber of Commerce. Wasley said seed money for startups often is consid-ered a risky form of business lending. Subsequent financing steps can come in the form of small, unsecured personal loans if a person has an established relationship with a financial institution. However, inter-est rates on such loans can be quite high and costly for the borrower. Additional steps can come from the federal Small Business Administration, Small Busi-ness Development Centers, community banks, community-based programs, venture capitalists or regional banks. The Neighborhood Economic Develop-ment Corp. of Mesa represents one commu-nity- based avenue where small-business owners can seek seed money. NEDCO, a nonprofit organization, provided loans to-taling about $38,000 to four small busi-nesses during its fiscal 2002-2003 year, which ended June 30, said Executive Direc-tor Karen LaFrance. NEDCO funds are loaned at variable rates, depending on the degree of risk associated with a business and usually for terms of four to five years, she said. Without naming loan terms for specific businesses, LaFrance said startups will bor-row from NEDCO at rates above the prevail-ing prime. More established business own-ers may be able to negotiate loan terms for interest-only payments in the early part of the term that ramps up to include principal payments further along in the loan schedule. “We can assess, in talking, whether the busi-ness is ready to borrow funds,” LaFrance said. The conversations also reveal whether, on a long-term basis, NEDCO will be working with “profitable businesses that are creating jobs,” she said. Retired Bank of America banker Harvey Prezant worked with business loans in the course of his 31-year career. He said banks want to see solid fi-nancials before lending to small-business owners. “A bank isn’t a venture-capital organization; it rents money,” Prezant said. “So they want their money back at an interest rate.” He, too, stresses the impor-tance for small-business own-ers to formulate a sound busi-ness plan before approaching prospective lenders. Prezant volunteers with the Service Corps of Retired Execu-tives, or SCORE. Through SCORE, retired business pro-fessionals serve as counselors to help small-business owners develop a business plan and grow their businesses. Small businesses also con-front tax obligations. From sales and use taxes to withholding, unemployment and business-specific licenses, small-business owners face a range of expenses that occur in the course of ongoing business. Corporate income taxes also can present a hurdle. Jay Kaprosy, vice president of public affairs at the Greater Phoenix Cham-ber of Commerce, said Arizona has estab-lished a corporate-property tax rate at 25 percent of assessed valuation. Kaprosy lobbies state lawmakers to en-courage them to set a rate that would be “more equitable” with the 10 percent rate assessed to residential properties. He says the 25 percent commercial assessment rate is the “number one issue impeding growth of businesses that are here.” But entrepreneurs should take heart. Re-sources such as the Arizona Department of Commerce, SCORE, Small Business Devel-opment Centers, chambers of commerce and the like exist to help small-business owners navigate their way through the maze of finance and accounting rules. Armed with solid information and a good accountant, the future is bright for startup ventures. 28B ■ Entrepreneur’s Edge THE BUSINESS JOURNAL phoenix.bizjournals.com NOVEMBER 21, 2003 One key to a successful business startup and expansion is your ability to secure appropriate financing. Raising capital is one of the most basic of all business activities, but, as many new en-trepreneurs quickly discover, it can be a complex and frustrating process. However, if you are informed and have planned effectively, raising capital doesn’t have to be a painful experience. This information summary focuses on ways a business can raise money and ex-plains how to prepare a loan proposal. Finding the money There are several sources to consider when looking for financing. It is important to explore all of your options before making a decision. The primary source of capital for most new businesses comes from personal savings and other forms of personal resources. While credit cards often are used to fi-nance business needs, there may be better options available, even for very small loans. Many entrepreneurs look to private sources such as friends and family when starting out. Often, money is loaned interest free or at a low rate, which can be beneficial. The most common source of funding, banks and credit unions, will provide a loan if you can show a sound business proposal. Venture-capital companies help expanding companies grow in exchange for equity or partial ownership. In Arizona, there are two Small Business Investment Companies li-censed by the SBA: Magnet Capital, 602-222- 4801 or www.magnetcapital.com; and Gray-hawk Venture Partners, 602-956-8700 or www.gvp.us. For a national listing of SBICs, visit www.sba.gov/INV/opersbic.html. Borrowing money It often is said that small-business owners have a difficult time borrowing money. This is not necessarily true. Banks make money by lending money. However, the inexperience of many small-business owners in financial matters often prompts banks to deny loan requests. Requesting a loan when you are not properly prepared sends a signal to your lender. That message is: high risk. To be successful in obtain-ing a loan, you must be pre-pared and organized. You must know exactly how much money you need, why you need it, and how you will pay it back. You must be able to convince your lender that you are a good credit risk. SBA loan maturities Small Business Administration loan pro-grams generally are intended to encourage longer-term small-business financing, but actual loan maturities are based on the abil-ity to repay, the purpose of the loan proceeds and the useful life of the assets financed. However, maximum loan maturities have been established: 25 years for real estate; up to 10 years for equipment; and generally up to seven years for working capital. Short-term loans guaranteed by the SBA also are available to help small businesses meet their short-term and cyclical working-capital needs. Types of loans Terms of loans may vary from lender to lender, but there are two basic types of loans: short-term and long-term. Generally, short-term loans have a matu-rity of up to a year. These include working-capital loans, accounts-receivable loans and lines of credit. Long-term loans have maturities greater than one year but usually fewer than seven years. Real estate and equipment loans may have maturities of up to 25 years. Long-term loans are used for major busi-ness expenses such as purchasing real es-tate and facilities, construction, durable equipment, furniture, vehicles, etc. For more information, call the Small Busi-ness Administration Answer Desk at 1-800- U-ASK-SBA (800-827-5722) or visit www .sba.gov. Consider options in search for capital Whether you are looking for a long-term loan for renovations or equipment, a working capital loan, a revolving line of credit, or a mi-croloan, the U.S. Small Business Adminis-tration has a program to fit your needs. Contact the SBA’s Arizona District Office at 602-745-7200 or www.sba.gov/az to find out how they can help. Most small businesses are eligible for SBA programs, and nearly all banks participate with the SBA. The loan package can be ap-proved as quickly as one to seven days. First you must apply for a business loan at your local bank. If the bank turns you down or if reasonable terms for financing are un-available from the lender, ask the bank to submit your loan application for reconsid-eration using the guarantee of the SBA. If your lender is in partnership with the SBA and the loan is approved subject to an SBA guarantee, a copy of the application and a credit analysis are forwarded by the lender to the nearest SBA office. After SBA approval, the lending institution can choose to close the loan and disburse the funds. For a list of SBA Arizona lenders, visit www.sba.gov/az and select “Financing.” According to Jim Hammersley, director of the Office of Loan Programs at the SBA of-fice in Washington, D.C., “The single most important part of the loan application is the business plan, showing every detail about your business, its markets and all about the products or services it provides.” To be successful in obtaining an SBA loan, you must know exactly how much money you need, why you need it, and how you will pay it back. You must be prepared, orga-nized, informed and ready to convince your lender that you are a good credit risk. Approval of your loan, in part, depends on how well you present yourself, your busi-ness and your financial needs to a lender. When your loan request is reviewed, the lender primarily is concerned about your abil-ity to repay and may require a copy of your business credit report from a reporting agency. The lender will want to know how much you have invested in your business; if you are creditworthy; if you are experienced enough to operate a successful business; if you have prepared a loan proposal and business plan; and if your business has suf-ficient cash flow to make the payments. For more information, see Page 30 of this magazine or visit www.sba.gov/financing. There’s an SBA loan to fit your business NOVEMBER 21, 2003 THE BUSINESS JOURNAL phoenix.bcentral.com Entrepreneur’s Edge ■ 29B Small-business loans are difficult to obtain for startup ventures. Grants to start a business do not exist. Entrepreneurs requiring funding for all new busi
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TITLE | Entrepreneur's edge |
CREATOR | Arizona. Dept. of Commerce |
SUBJECT | Small business--Arizona--Management--Handbooks, manuals, etc.; New business enterprises--Arizona--Handbooks, manuals, etc.; Commercial associations--Arizona--Directories; |
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REPOSITORY | Arizona State Library, Archives, and Public Records--Law and Research Library. |
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TITLE | Entrepreneur's edge 2004 |
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Full Text | 2B ■ Entrepreneur’s Edge THE BUSINESS JOURNAL phoenix.bizjournals.com NOVEMBER 21, 2003 TABLE OF CONTENTS Entrepreneur’s Edge A resource guide filled with the tools to help your business reach the top • Credits Project editor: Randi Weinstein Copy editor: Carol Rennen Cover design: Matt DePinto Contributing writer: Susan Mercer Hinrichs On the cover: Slide provided by the Arizona Office of Tourism Welcome letters: ■ Arizona Gov. Janet Napolitano . . . . .4 ■ Arizona Department of Commerce Director Gil Jiménez . . . . . . . . . . . .4 ■ The Business Journal Editor Ilana Ruber . . . . . . . . . . . . . . . . . .5 ■ Wells Fargo Business Banking Executive Vice President and Manager Dean Rennell . . . . . .6 ■ Sam’s Club President and CEO Kevin Turner . . . . . . . . . .7 Chapter 1 Building a Business: Tools for starting, growing & locating your company . . . . . .9 Arizona Department of Commerce programs and services . . . . . . . .10-12 ■ Small Business Services . . . . . . .10 ■ Minority/Women-Owned Business Services . . . . . . . . . . .10 ■ Governor’s Small Business Advocate . . . . . . . . . . . . . . . . . .10 ■ Business Attraction and Development . . . . . . . . . . . .10 ■ ArizonaBusinessLINC.com . . . . . .10 ■ Rural Development Office . . . . . . .10 ■ Community Planning Office . . . . . .10 ■ International Trade and Investment . . . . . . . . . . . . . .11 ■ Workforce Development . . . . . . . .11 ■ Job Training Program . . . . . . . . . .11 ■ Apprenticeship Program . . . . . . . .11 ■ IT Training Tax Credit . . . . . . . . . .11 ■ Arizona Workforce Connection . . . .11 ■ Arizona Film Commission . . . . . . .11 ■ Business Development Finance . . . . . . . . . . . . . . . . . . .11 ■ Commerce and Economic Development Commission . . . . . .12 ■ Office of Economic Information and Research . . . . . . . . . . . . . . .12 ■ Office of Innovation and Technology . . . . . . . . . . . . . .12 Discover the Arizona Business Connection . . . . . . . . . . . . . . . . . . .12 Business structures and registration . .13 ■ Sole Proprietorship . . . . . . . . . . .13 ■ General Partnership . . . . . . . . . .13 ■ Limited Partnership . . . . . . . . . . .13 ■ Limited Liability Partnership . . . . .13 ■ Limited Liability Company . . . . . . .13 ■ Corporation . . . . . . . . . . . . . . . .14 ■ S Corporation . . . . . . . . . . . . . . .14 ■ Foreign Corporation . . . . . . . . . . .14 ■ Tax Exempt Organizations . . . . . . .14 ■ A comparison chart of business structures . . . . . . . . . . . . . . . . .15 Trade Names . . . . . . . . . . . . . . . . .17 ■ Questions and answers to help you get started . . . . . . . .17 ■ Where to file for a trade name . . .17 ■ Filing guidelines . . . . . . . . . . . . .17 A solid business plan is a must . .18-19 Tips for writing your blueprint . . . . . .19 Library Resources . . . . . . . . . . . . . .20 How to: Picking a name is an important step .16 Susan Brooks: Vision, first and always . . . . . . . . . .21 Chapter 2 Locations & Regulations . . . . .22 How to: Location makes a difference . . . . . . .23 Scott Clark: Be prepared for OSHA . . . . . . . . . . .25 Protect your business . . . . . . . . . . .24 Industry classifications . . . . . . . . . .25 A chart of industry classifications . . .26 Chapter 3 Finance & Accounting . . . . . . .27 Consider options for capital . . . . . . .28 SBA loans for your business . . . . . . .28 Help is available for small businesses . . . . . . . . . .29-31 ■ Commercial banks . . . . . . . . . . .29 ■ Business financial organizations . .29 ■ A listing of financial resources . . .30 ■ Small Business Administration . . .30 NOVEMBER 21, 2003 THE BUSINESS JOURNAL phoenix.bizjournals.com Entrepreneur’s Edge ■ 3B ■ Venture capital . . . . . . . . . . . . . .30 ■ Arizona enterprise zones . . . . . . .30 ■ Securities offerings . . . . . . . . . . .31 Be aware of different tax laws . . .32-33 ■ Arizona Department of Revenue . .32 ■ Arizona’s joint tax application questionnaire . . . . . . . . . . . . . . .32 ■ Transaction privilege (sales) tax . .32 ■ Use tax . . . . . . . . . . . . . . . . . . .32 ■ Withholding and unemployment taxes . . . . . . . . . . . . . . . . . . . . .32 ■ Wholesale tobacco dealer’s license . . . . . . . . . . . . . . . . . . . .32 ■ Liquor wholesalers, microbreweries, farm wineries and cider products . . . . . . . . . . .32 ■ Corporate income tax . . . . . . . . .32 ■ Exempt cities . . . . . . . . . . . . . . .33 ■ IRS resources . . . . . . . . . . . . . . .33 ■ Property taxes . . . . . . . . . . . . . .33 ■ Unemployment insurance . . . . . . .33 ■ Federal tax requirements . . . . . . .33 ■ Federal income tax withholding . . .33 ■ Social Security taxes (FICA) . . . . .33 ■ Federal unemployment tax . . . . . .33 Rick Rayson: Private firms should note Sarbanes-Oxley . . . . . . . . . . . . . . . .31 How to: Choose your accountant with care . . .34 Chapter 4 Technology . . . . . . . . . . . . . . .35 How to: Find a Web firm that fits your vision . .36 Brad Patten: Learn to manage technology . . . . . . .37 Tips to leverage the Internet . . . . . . .37 Chapter 5 Sales & Marketing . . . . . . . . . .38 State contracts boost business . . . . .39 Avoid these 6 marketing mistakes . . .41 How to: Choosing the right ad agency is key . .40 Richard Haasnoot: Make marketing persuasive . . . . . . .42 Chapter 6 Human Resources . . . . . . . . . .43 Labor regulations . . . . . . . . . . . .44-47 ■ Posting requirements . . . . . . . . . .44 ■ Federal . . . . . . . . . . . . . . . . . . .44 ■ Arizona . . . . . . . . . . . . . . . . . . . .44 ■ Local cities . . . . . . . . . . . . . . . . .44 ■ Fair Labor Standards Act . . . . . . .44 ■ Wage payment laws . . . . . . . . . . .44 ■ Minimum wage and overtime . . . .44 ■ Employing minors . . . . . . . . . . . .44 ■ Right-to-work legislation . . . . . . . .45 ■ Safety regulations . . . . . . . . . . . .45 ■ Discrimination in employment . . . .45 ■ Immigration and Nationality Act . . .45 ■ Arizona’s workers’ compensation insurance . . . . . . .45 ■ Defining employee/independent contractor status . . . . . . . . . . . . .46 ■ Employees who work in more than one state . . . . . . . .47 ■ What is exempt employment? . . . .47 ■ Constructive discharge . . . . . . . .47 How to: Research health insurance providers .48 Kevin Herring: Create commitment workplaces . . . .49 Chapter 7 Expanding Your Business . . . . .50 How to: Program helps finance overseas trade . . . . . . . . . . . . . . . .51 Douglas Cohen: Grow your business internationally . . .52 Top Arizona export destinations . . . . .51 Top Arizona exports by sector . . . . . .52 Appendix Resource Information . . . . . . . .54 ■ State licensing agencies . . . . .54-55 ■ City & town licensing agencies . . . . . . . . .55-56 ■ State economic development organizations . . . . . . . . . . . . . . .56 ■ Tribal offices & organizations . .56-58 ■ Minority organizations . . . . . . . . .58 ■ City & town economic development organizations . . .58-59 ■ Chambers of commerce . . . . .59-61 ■ Business checklist . . . . . . . . . . .63 ■ Business affiliations . . . . . . . .64-65 ■ Center for the Advancement of Small Business . . . . . . . . . . . .65 ■ Small Business Development Centers . . . . . . . . . . . . . . . . . . .66 ■ Small Business Services Office . .67 ■ SCORE . . . . . . . . . . . . . . . . . . .67 ■ Technology resources . . . . . . . . .68 ■ On the Web . . . . . . . . . . . . . .69-70 ■ Application for a trade name . . . . .71 Don Henninger Publisher Ilana Ruber Editor Michael Vinales Sales Manager Wimberly Doran Business Manager David Hostetler Production Director Paul Sanders Circulation Director ■ EDITORIAL: Managing Editor: Cathy Luebke Projects Editor: Randi Weinstein Copy Editors: Dale Brown Carol Rennen Graphics Editor: Matt DePinto Broadcast Reporter: Diane Arthur Senior Reporters: Angela Gonzales Mike Padgett Reporters: Adam Kress Mike Sunnucks Editorial Coordinator: John Schwartz Research Director: Judy Trunnelle Research Reporter: Leslie Donaldson Photographer: Jim Poulin Production Assistant: Austin Ricks ■ ADVERTISING: Senior Advertising Consultants: Melanie Fallen Lisa Grannis Lisa Johnson Advertising Consultants: Alicia Amsbaugh Mark Lindsey Jennifer Niccoli Lesley Sargent Classified Advertising Manager: Stephanie Handley Advertising Coordinator: Sherri Conley Graphic Designer: Tim Clarke ■ CIRCULATION: Associate Circulation Manager: Jeorgetta Douglas- Acosta Sales Development Specialist: Ericka Espino Sales and Marketing: April Sansoterra ■ ADMINISTRATION: Senior Administrative Coordinator: Carol Nelson-Park Marketing and Events Coordinator: Heidi Maxwell Receptionist: Renee Nash The Business Journal of Phoenix 101 N. First Ave., Ste. 2300 Phoenix, AZ 85003 Phone: 602-230-8400 Fax: 602-230-0955 Web: http://phoenix.bizjournals.com The Business Journal is a publication of American City Business Journals Inc. Chairman: Ray Shaw The Business Journal 4B ■ Entrepreneur’s Edge THE BUSINESS JOURNAL phoenix.bizjournals.com NOVEMBER 21, 2003 November 2003 Greetings! The Entrepreneur’s Edge is Arizona’s official guide for establishing and operating a small business. Provided by the Arizona Department of Commerce free of charge, this guide is the ideal starting point for your ven-ture. It is comprehensive, well-organized and easy to understand. The state of Arizona values small business and takes great pride in the phenomenal business growth over the past decade. The entrepreneurial spirit is the engine that drives our robust economy. Our state and local governments continue to encourage new ventures through policies and programs friendly to small business. Whether you are starting a small business, expanding or relocating to Arizona, we welcome you. I know you will find our business environment favorable and our quality of life unsurpassed. For more information on what Arizona offers you and your small business, please visit the Arizona De-partment of Commerce Web site at www.azcommerce.com. Click on Small Business Services for informa-tion and referrals — including the Arizona Business Connection (ABC) online program — tailored to meet your individual needs. Good luck and thank you for your contribution to Arizona’s economy. Sincerely, Janet Napolitano Governor November 2003 Dear Entrepreneurs: Whether you’re thinking about starting a business or ready to start or looking for ways to increase your market share, the Arizona Department of Commerce adds indispensable support and value to your efforts. This publication makes a great reference guide no matter where you are in the process. You also will find important information and easy access to many other support services by visiting the Department of Commerce Web site at www.azcommerce.com. You can write a business plan, learn how to pursue procurement opportunities through the state and local governments, retrieve the forms you need for licensing or permits and find out about important networking opportunities available throughout the state. I also encourage you to take the time to list your enterprise in one or more of the directories we have for your use online. The Arizona Department of Commerce at 602-771-1100 or by fax at 602-771-1200 can assist you with find-ing the perfect site, setting up an apprenticeship program, funding job training for your employees, or even becoming export-ready. I hope you will leverage these and all our value-added services and enjoy great success! Sincerely, Gilbert Jiménez Director Arizona Department of Commerce NOVEMBER 21, 2003 THE BUSINESS JOURNAL phoenix.bizjournals.com Entrepreneur’s Edge ■ 5B November 2003 Dear Entrepreneurs: The only thing harder than starting a small busi-ness is keeping it up and running — especially in today’s ever-changing marketplace. So The Business Journal and the Arizona De-partment of Commerce once again have teamed to produce Entrepreneur’s Edge, a resource guide that can help you answer some of those tough questions about running your business. This year marks the second time we have part-nered with La Voz to publish a Spanish-language version of this guide. We are excited to be reaching out to the Spanish-speaking portion of the community. Running a business of your own can bring independence and ac-complishment. If you already are in business and have weathered the stormy economic conditions, that’s great news. But now it is time to shift your focus from survival to growth. And this guide was developed to help you empower your small business. With Entrepreneur’s Edge, we have collected some of the best ad-vice on everything from writing a business plan, to getting financ-ing to dealing with state labor regulations. This is a good guide full of resources and advice that can help you grow your business. We often hear warnings about the high failure rates of small busi-nesses. What we don’t hear about is how remarkable it is that en-trepreneurs so often beat the odds and achieve the seemingly im-possible. And in Arizona, we continue to make national headlines as a top hot spot for these risk-takers. It takes a lot of work, solid strategy and good planning to be successful. The Business Journal can help. The mission of our paper is to be the premier source of business news and information in the Valley. We are a key source to help you grow your business. This magazine is one example of that. Thank you to Wells Fargo and Wal-Mart, our premier sponsors, the ADOC and La Voz, our Spanish-language partner in this effort. We invite you to call us for a free trial of our weekly newspaper, and watch for our daily news reports on our Web site, phoenix .bizjournals.com. Also, I hope you will contact me by phone, 602-308-6513, or e-mail, iruber@bizjournals.com, if you have suggestions on how we can continue to help you and your business. Sincerely, Ilana Ruber Editor The Phoenix Business Journal and Reaches 80% of the Spanish dominant adult community in Phoenix and Tucson.* *Source: Scarborough Hispanic Survey, Release 1 2002; TV y Más Reader Survey, February 2002; Hispanic Track, Sept. 2001 For More Information call The Ashland Media Group 602 443 4300 800 N. 1st Ave. Phoenix, AZ 85003 6B ■ Entrepreneur’s Edge THE BUSINESS JOURNAL phoenix.bizjournals.com NOVEMBER 21, 2003 Arizona Entrepreneurs: Wells Fargo is pleased to sponsor The Business Journal’s Entrepreneur’s Edge — an invaluable resource for business owners. Wells Fargo’s Arizona business banking team is another great resource for entre-preneurs, combining our community banking approach with ground-breaking technology. Wells Fargo is developing new services to help us remain Arizona’s leading small-business bank. We originate more dollars in small-business loans than any other lender in the United States, Arizona and the Valley. We also were the state’s leading Small Business Administration (SBA) lender last year, and we’re a preferred SBA lender in 27 states, including Arizona. Wells Fargo is a leader in making loans to women, Latino and African American-owned small businesses nationwide through our multibillion-dol-lar lending initiatives. Behind each of these loans is a financial services expert who gets to know you and your goals for the future, and then delivers value-added solutions and access to the funds you need. Our decisions are made locally by professionals with extensive experience in financial services. Many of these profession-als work in our 10 statewide business banking centers. They understand the needs of business customers in a changing economic environment, and they deliver fast, customized solutions. Small business is big business at Wells Fargo. Quality is our focus and innovation is our hallmark. We have developed multiple ways to serve small businesses. For example, we have placed 20 business specialists in our stores throughout the state. These specialists connect our customers with Wells Fargo’s extensive business services. One of these, our Busi-ness Direct Group, provides owners of small companies with a fast, easy application process for loans up to $100,000. We also partic-ipate in special lending and referral programs, including the Arizona MultiBank and Magnet Capital. Wells Fargo has developed channels that allow you to conduct your financial business when, where and how you want to. We pro-vide 24-hour service through our phone banks, our industry-leading online services and our network of ATMs. Providing you with the financial tools to succeed is what we’re all about. We want to offer better products and a broader product line than our local competitors and to out-perform our national competitors by staying close to our customers and providing professional, personal, timely advice and service. We have developed expertise in industries including title companies, government banking, nonprofits, health care and legal services. And we have developed innovative programs such as qualified retirement plans tailored to meet the special needs of small businesses in Arizona. We’re also a leader in developing products and services that can help our business customers fight — and win — the grow-ing problem of financial fraud. As the leading Internet bank, we continue to develop the most innovative online financial technology. Click on wellsfargo.com/biz, and you can manage accounts, get credit, buy software, get technology information, create a Web site, advertise online, send mail and even write news releases. And that’s just a partial list of what you can do with this remarkable resource. We’re leaders because we constantly ask what you want and need — and you can count on Wells Fargo to continue to keep ahead of your needs, developing more innovations that will help you build profitable and growing companies. Call me at 602-378-5723 to learn how Wells Fargo can help you and your business. Sincerely, Dean Rennell Executive vice president and manager Wells Fargo Business Banking NOVEMBER 21, 2003 THE BUSINESS JOURNAL phoenix.bizjournals.com Entrepreneur’s Edge ■ 7B Dear Entrepreneurs: At Sam’s Club, we exist solely to help small-business owners succeed nationwide. Sam Walton formed Sam’s Club 20 years ago to help small-business operators live the American Dream — the same dream he lived when he started Wal-Mart. We are proud to partner with The Business Journal in support of this edition of Entrepreneur’s Edge. As an ad-vocate and partner to millions of small businesses, it is an honor to serve the communities of Arizona. Small businesses generate at least two out of every three new jobs in America, and we’re going to do every-thing we can to help them succeed. We understand that success depends in part on mastering the basics — ex-pense control, operational efficiency, and consistent, quality materials. That’s what we provide at Sam’s Club. We recognize that time is of the essence and invite you to take advantage of the many time-saving services we offer. We make it easy and fast to shop at Sam’s Club with our early-morning Gold Key hours, Fax ’n Pull and Click ’n Pull services, special-order catalogue and Web site, www.samsclub.com. Despite the current economic challenges, we remain committed to ensuring that you can take advantage of “everyday low prices” that will enable you to drive costs out of your business, thereby lowering your over-all cost of doing business. We appreciate your patronage and hope you will allow Sam’s Club to be your resource for wholesale savings on everyday business and personal needs. If you are not currently a member of Sam’s Club, I invite you to take advantage of this special guest pass below. See you in the club! Sincerely, Kevin Turner President and CEO Sam’s Club Why become a SAM’S CLUB® Member? Savings. Quality. Choices. Value. Service. All under one roof for your convenience. Come and shop – get the same warehouse prices that our Business Members enjoy. Your exclusive Member Benefits and Services include: • Travel Services • Auto Buying Program • The Home Service Store® • Mail-Order Pharmacy • And more Join us today. For only $35 (plus tax in some places), receive two annual Membership cards – one for you and one for a household member. Your Membership is 100% guaranteed. Don’t miss this opportunity. *The SAM’S CLUB One-Day Guest Pass is good for one day only. Only original certificates will be accepted. A 10% service fee applies on all purchases when shopping with this One-Day Guest Pass (not applicable in CA, SC, or Elmsford, NY). You must pay for your purchases with cash, debit card (check Club for qualifying debit networks), Wal-Mart Credit, or Discover® card only (no checks). You may apply for Membership, subject to qualifications, while visiting any SAM’S CLUB location or online at samsclub.com. Good through December 31, 2003. Your One-Day Guest Pass* to Shop (10% Service Fee Applies) Take this Guest Pass to your local SAM’S CLUB® to gain access to the exclusive savings that businesses enjoy every day! Guest Pass #10256581687 Hurry! Good through December 31, 2003. Become a Member today and avoid the 10% Service Fee that applies to all nonmember purchases. • C-Stores and Retail Stores • Restaurants and Foodservice • Beauty Salons and Barber Shops • Contractors and Maintenance & Repair • Daycares and Schools • Vending • Offices and Office Supplies • Churches and Religious Organizations • Motels and Bed & Breakfasts Our Business Is Saving Your Business Money.SM BY SUSAN MERCER HINRICHS Special to The Business Journal The entrepreneurial spirit has burned within your soul for years. After experimenting with various ideas, you believe you’ve finally determined the best way to fill a void in a service or in-dustry. Possibly, you’ve discovered a way to make an existing product better or you’ve invented an entirely new gadget. No matter what the driver, packaging your idea or product into your own business can be both invigorating and daunting. That’s where the Arizona Department of Commerce and a host of organizations ded-icated to assisting new and established en-trepreneurs come into focus. With names like SCORE, the Service Corps of Retired Executives; EDIC, the Eco-nomic Development Information Center; and ABLE, Arizona Building Local Eco-nomics program, to name a few, entrepre-neurs can benefit from a variety of re-sources readily available to them. SCORE, for example, provides sound business advice and mentors to entrepre-neurs seeking guidance in the startup phase of their companies. Take Beverly Rathjen’s dream, for example. She was a stay-at-home mother taking care of her infant son, Kyle, when she took the first steps to turn her e-business idea into reality. She saw a SCORE newsletter at a Mesa Public Library branch and contacted the or-ganization for help. “I managed to get a great counselor, Har-vey Prezant,” Rathjen said. “Harvey led me through the business plan, and when he did not have the expertise to help me, he had me meet with a specialist at SCORE in the area I needed help. “It was a labor of love at times and a bur-den at other times,” Rathjen said, describ-ing the year-long process to develop her business plan. “I decided to have an e-busi-ness. That way I did not have to keep hours at a store and not be able to spend time with my son.” Rathjen’s idea became an Internet-based business called La Bella Madonna in the spring of 2003. The business offers gift bas-kets to new moms and their babies. “Beverly was fun to work with,” Prezant said. “She knew what she wanted to do, and we talked about her product.” Prezant is a retired Bank of America exec-utive, with more than three decades of ex-perience. A SCORE volunteer for some three years, he described Rathjen’s passion for her idea as among the reasons the orga-nization agreed to work with her. Also, he said her idea made “a heck of a lot of sense.” Before launching a new business, deter-mine the position it occupies in its market. Questions to ask include the following: 1. How does your product or service fill a void? 2. Who will your customers be? 3. How will you supply them? 4. Who or what stands as a market com-petitor? 5. How much time, energy and resources are you willing to commit toward establish-ing your business as a going concern? 6. Do statistics exist concerning similar business startups? One online resource entrepreneurs have available is the Arizona Department of Commerce’s Web site, www.azcommerce .com. The site provides a wealth of free in-formation to help small-business startups. Click the links for facts and figures about Business Development and Attraction. The Innovation & Technology link contains in-formation about support sources and ven-ture- capital opportunities. Another will de-scribe the Arizona Bioindustry Cluster. The Center for the Advancement of Small Business at the W.P. Carey School of Busi-ness at Arizona State University is as an-other valuable resource. According to center Director Mary Lou Bessette, “Success is about making the best choice (for an individual’s business). You can live what you imagine.” Bessette said Arizona’s pro small-business climate makes it one of the leading states in the nation for startups. CASB figures indi-cate 651,000 small businesses exist in Ari-zona, providing for 98 percent of all new jobs created. Among those businesses, 41 percent of them are started by women. A key part of establishing a business is de-ciding the business structure under which an enterprise will operate. A business can be established as a partnership, a limited li-ability company, a limited liability corpora-tion or an S corporation, to name a few. (For more information, see Pages 13-15.) With these basics in place, entrepreneurs take the first steps in hanging out their own shingle. (For a helpful business checklist filled with important steps to get started, see Page 63.) NOVEMBER 21, 2003 THE BUSINESS JOURNAL phoenix.bizjournals.com Entrepreneur’s Edge ■ 9B CHAPTER 1 Building a Business Tools for starting, growing & locating your company 1• 10B ■ Entrepreneur’s Edge THE BUSINESS JOURNAL phoenix.bizjournals.com NOVEMBER 21, 2003 The Arizona Department of Commerce provides a wholly integrated ap-proach to statewide economic devel-opment. Our job is Jobs! By pursuing strategies that diversify our economy, we facilitate the creation of high-paying jobs and expand our tax base in order to fund critical public services and improve quality of life for all Arizonans. Small business is the backbone of our economy. More than 95 percent of the busi-nesses in Arizona have fewer than 100 em-ployees and nearly one-third (numbering close to 300,000) are sole proprietorships or home-based. Every area of service within the Arizona Department of Commerce sup-ports the success of this small-business base. Here’s why: According to the U.S. Small Business Ad-ministration Office of Advocacy, small busi-ness creates more than 75 percent of net new jobs. Small enterprises also produce 55 percent of innovations, twice as many prod-uct innovations as large firms, and obtain more patents per sales dollar than large business. Visit the ADOC Web site at www.azcom-merce. com for information and tools to start, maintain and grow your business. Small Business Services Arizona Department of Commerce Small Business Services offers support through several key functions: The Arizona Business Connection is a step-by- step resource center providing customized licensing and referral information for every stage of small-business development. You can connect 24/7 via the Department of Com-merce Web site at www.azcommerce.com. Click on Small Business Services and follow the Arizona Business Connection link. Minority/Women-Owned Business Services The Arizona Department of Commerce collaborates with numerous business orga-nizations to promote entrepreneurship among minorities and women in Arizona, facilitate procurement opportunities and advocate on issues that are important to these communities. Governor’s Small Business Advocate The Small Business Advocate keeps an open line of communication with the gover-nor, works with chambers and other groups to develop policies and programs that ad-dress statewide issues concerning small businesses, interacts with state regulatory agencies to improve their responsiveness to small businesses and assists entrepreneurs in working with other state agencies. The Governor’s Council on Small Business is staffed by the Commerce Small Business Services division. The council’s role is to sup-port the outreach and resource-developing activities of the Governor’s Small Business Advocate by: • Identifying and recommending opportu-nities to promote the prosperity of Arizona small businesses to the governor and the state Legislature. • Providing a forum for small-business owners to voice concerns and recommenda-tions to the governor. • Investigating and evaluating the impact of state regulation, legislation and administra-tive processes on Arizona small businesses. Business Attraction and Development The Arizona Department of Commerce provides a single point of contact for assis-tance in site selection and access to busi-ness resources. Free services include: • Information on available sites through-out Arizona. • Customized research on the state, its economy and industry sectors. • Cooperative participation in state-spon-sored trade shows. • Access to incentive programs and appli-cation assistance. • Coordination and facilitation of meet-ings with statewide resource providers. • Specialized assistance in aerospace, bio-sciences, environmental and information-technology sectors. AZBusinessLINC.com The Arizona Department of Commerce ex-panded this supplier network online service to cover the state. AZBusinessLINC.com is where buyers and sellers meet through a comprehensive and interactive database that: • Profiles the capabilities of Arizona busi-nesses. • Increases buyer awareness of the products and services available throughout the state. • Assists sellers to identify new marketing opportunities and access companies with im-mediate procurement needs, companies seek-ing longer-term supplier relationships and businesses looking for collaborative partners. AZBusinessLINC staff provides technical support and extended confidential buyer-needs search assistance. If your search effort is unsuccessful or your company’s product or service category is not adequately de-fined, call toll free 866-882-5462. Rural Development Office The Arizona Department of Commerce promotes local self-sufficiency and supports sustainable economic development with technical and financial assistance from a broad range of sources. The Rural Develop-ment office provides local leaders and com-munity organizations with customized train-ing and resources through three programs: Main Street Program The Arizona Department of Commerce af-filiates with the National Main Street Pro-gram to assist Arizona communities in revi-talizing their downtown business districts by: • Organizing and training Main Street boards and committees. • Facilitating meetings and work program retreats. • Accessing technical and financial assis-tance for program implementation. • Offering design assistance to business owners. Rural Economic Development Initiative The Arizona Department of Commerce provides direct assistance to rural commu-nities in evaluating resources and organiz-ing economic development efforts. Quali-fied rural programs and organizations with an ongoing commitment to economic de-velopment can be accredited through REDI, making them eligible for technical and matching-fund assistance to develop an ef-fective, locally generated program of activi-ties; and implement plans to become more attractive for capital investment and indus-trial and business locations. Business Retention and Expansion Department of Commerce efforts in com-munities throughout Greater Arizona for the retention and expansion of business em-phasize creating an environment that en-courages stability and success. We provide expertise and resources to aid in the design and implementation of a locally defined and community-based BR&E program. Community Planning Office The Arizona Department of Commerce Community Planning Office directs the state’s largest job-retention program in his-tory through the Arizona Military Airports Regional Compatibility Project, a proactive endeavor to convene stakeholders around each base — the governments, military, homeowners and business people — to ad-dress land-use compatibility issues. Military installations throughout Arizona account Arizona Department of Commerce Continued on Page 11B NOVEMBER 21, 2003 THE BUSINESS JOURNAL phoenix.bizjournals.com Entrepreneur’s Edge ■ 11B for some 83,000 jobs and $5.7 billion to the state economy each year — all of which is threatened by uncontrolled growth. Certified community planning profession-als foster community capacity-building and foundation development through technical expertise on the Growing Smarter man-dates, land-use and strategic planning, zon-ing, infrastructure, research and public par-ticipation. International Trade and Investment The Arizona Department of Commerce In-ternational focus is twofold: to help small-and medium-sized businesses thrive by as-sisting them with foreign trade; and to at-tract foreign investment to the state. In addition to an Arizona-based team of international trade specialists, expertise and resources are available through foreign trade offices in Mexico, Japan, Taiwan and the United Kingdom. These experts facili-tate contacts with local partners and gather sales leads that can be matched with Ari-zona- based suppliers. Educating Arizona businesses on elements of foreign trade From questions about getting started to specific concerns about developing the ex-port side of your business, our trade spe-cialists are experts in marketing abroad. In addition to general trade information available online at www.azcommerce.com, experts help you find interested trading partners and meet with you and your staff to assist in developing your trade strategy. Getting started Your first step is to identify the most lucra-tive potential markets for your product or service. We provide country-specific infor-mation gathered by U.S. embassies and con-sulates detailing market size, distribution channels and major in-country players; ref-erence materials/sources for your industry, including trade journals, associations and promotional events; and reports on world-wide trends in your primary target areas. Contact facilitation Once you’ve decided which markets are best for your business, we assist you in iden-tifying potential buyers, distributors, suppli-ers or other strategic partners. We maintain numerous sources and will assist you in de-veloping a list of targeted companies. Company background Before responding to foreign leads or sign-ing any contractual agreements, do your homework. We’ll help you obtain general background information on your potential partners so you can make informed decisions. Trade missions and trade/catalog shows Arizona Department of Commerce trade missions are designed to introduce small and medium-sized Arizona businesses to in-ternational markets. Our trade specialists and foreign offices help you identify prospective partners/distributors, schedule meetings, and arrange for interpreters and networking events. These missions provide an opportunity to assess target markets first-hand. We invite Arizona businesses to exhibit with us at trade and catalog shows world-wide. In some cases, you can promote your business through catalog shows attended by our trade specialists. Workforce Development The Arizona Department of Commerce pro-vides staff oversight and policy direction to the Governor’s Council on Workforce Policy. The 35-member council is made up of busi-ness, state and educational leaders who rec-ommend and advise the governor on all is-sues related to improving the effectiveness of Arizona’s work-force development system, known as the Arizona Workforce Connection. Job Training Program Design a customized curriculum to meet your specific work-force needs by applying for a grant through the Arizona Department of Commerce Job Training Program. The program supports the design and delivery of training plans that meet unique industry standards and challenges. Under the “Net New Hire” portion of the grant program, businesses can apply for grants that return up to 75 percent of the costs of training net new employees in jobs that meet the threshold wage criteria. The “Incumbent Worker” portion of the grant program allows for training that up-grades the skills of existing employees who also must meet the threshold wage criteria. The Incumbent Program can reimburse employers up to a maximum of 50 percent of allowable training costs and may include: course development fees; and development, purchase or production of training materi-als or trainer fees. Applications for the Arizona Job Training program are available online at www.az commerce.com or by calling 602-771-1181. Apprenticeship Program Registered apprenticeship is a training system that produces highly skilled workers to meet your demands. Apprenticeship is a proven strategy that combines on-the-job training with related classroom instruction. Arizona has more than 100 registered ap-prenticeship programs with more than 2,500 apprentices in industries such as agri-culture, construction and manufacturing. For more: 602-771-1182 or www.azcom merce.com. IT Training Tax Credit Meet your immediate needs for in-house information technology skills and offset training costs through the Arizona Informa-tion Technology (IT) Training Tax Credit available to businesses as a 50-50 match for training up to 20 employees in information technology skills. To qualify for the Infor-mation Technology Training Tax Credit, an Arizona business must: • Be sending an Arizona employee to qual-ified information training. • Use accredited training institutions. For applications, visit www.azcommerce .com or call 602-771-1181. Arizona Workforce Connection Attract qualified applicants and cut em-ployee selection and retention costs through the Arizona Workforce Connection. Arizona employers profit from the simple, flexible services that Arizona Workforce Connection sites tailor for unique business needs. Streamlined and standardized for busi-ness efficiency, Arizona Workforce Connec-tion sites integrate the major work-force de-velopment players across the state. And, most services are provided free of charge. Services include: • Job bank posting. • Screened and trained labor pool. • Training and education resources for in-cumbent workers. • On-site applicant screening and job fairs. • Rapid response pre-layoff support. • Current and historical labor market in-formation. • Unemployment insurance information. For more information, visit the Web site at www.arizonaworkforceconnection.com. Arizona Film Commission Housed in the Arizona Department of Commerce, the Arizona Film Commission attracts film and television production from around the globe for economic development; serves as the statewide liaison for local, county, state, federal and tribal governments as well as private-sector businesses and prop-erty owners statewide; promotes Arizona employment for film professionals and Ari-zona businesses used by film companies. Businesses benefiting from film-company spending include everything from hotels and restaurants to car rental agencies and a wide range of support services. Business Development Finance Arizona Department of Commerce finan-cial programs that promote economic de-velopment opportunities statewide include: • The Arizona Enterprise Zone Program, or EZ, offers tax benefits to businesses lo-cated in distressed areas of the state. The EZ program offers a tax credit to nonretail Continued from Page 10B See ADOC, Page 12B 12B ■ Entrepreneur’s Edge THE BUSINESS JOURNAL phoenix.bizjournals.com NOVEMBER 21, 2003 What are the right reasons for start-ing your own business? It starts with asking yourself what makes your business idea different; what is your competitive edge? Regardless of the type of business you are in-terested in, there are many community and edu-cational organizations that can help you, with-out charge, explore your business options. Once you know what type of business you want to start, visit the Arizona Department of Commerce’s Web site at www.azcommerce .com and click on “Small Business Services.” The Small Business Services Division is your statewide resource for licensing, certification and small-business assistance for every stage of business development: startup, expansion or relocation. The Arizona Business Connection is a step-by- step online service that walks you through what you need to know to start or expand your business, and it is accessible 24 hours, seven days a week (24/7). This program ap-plies to the majority of people/organizations seeking occupational, business or license in-formation, and will provide other valuable information and resources. The program is designed to take you through a series of brief statements; you can skip over any statement that doesn’t apply to your business needs. Once you have com-pleted the program, a customized report will appear on the screen. Your report will enable you to link over and download most of the forms you may need. It also provides you with telephone numbers and addresses in the event that you wish to contact an agency or organization directly. You can revisit the program as many times as you like. A personalized “Welcome Back” page will be created after your first visit, of-fering quick links to the pages you want in-formation about. Some of the information available to you on our Web site and in En-trepreneur’s Edge include: Trade Name/Trademark Information on how to register and re-search your business name or logo with county, state and federal agencies. Corporations/LLCs Which is right for me? This book contains one of the best reference charts for making an informed decision. Once you decide, our Web site will direct you to the necessary forms to get started. Industry Specific Information Regulatory licensing and/or certification and environmental restrictions or require-ments, health permits, child-care licensing, contractor’s license, auto dealer’s license, etc. State Taxes Access to information and brochures on Arizona’s Transaction Privilege (Sales) Tax (TPT) and Use Tax. Employees The most important part of any business is its employees. How do I hire employees? What forms am I required to file? Where can I go for help? Step-by-step to hiring your em-ployees. City & County Tax/Licensing Every city and county in Arizona has a dif-ferent set of requirements for starting a busi-ness within its jurisdiction. Some of these requirements include: home-based business permits, licenses, tax licenses, zoning permits, etc. Referrals/Special Assistance Small Business Services has developed a free online directory to promote the state’s minority and/or women-owned businesses throughout the world. This directory helps state, county, city and corporate buyers look-ing to do business with minority and/or women vendors. You can add your business to the directory. You can search the directory for vendors to do business with. You also can download the directory. For Bid Opportunities, there are links to public and private-sector buyers. The Calen-dar of Business Events links to a schedule of statewide networking meetings. Discover the Arizona Business Connection businesses for net increases in new quality jobs within a zone. The program offers manufacturing businesses a property tax re-duction for a period of five years if the com-pany makes the required investment in fixed assets in the zone. • The Private Activity Bonds Program, or PAB, allocates the state’s portion of the feder-ally established tax-exempt private activity bond volume cap. PABs can be used to fi-nance industrial and manufacturing facilities and equipment, student loans, single and multifamily housing, private utility projects and some municipal facilities. In addition, Commerce Business Develop-ment Finance administers the Military Reuse Zone. For more: www.azcommerce.com. Commerce and Economic Development Commission The Commerce and Economic Develop-ment Commission, or CEDC, is appointed by the governor to advise and coordinate economic development policy for the state of Arizona. Office of Economic Information and Research The Office of Economic Information and Research serves as the state’s clearinghouse for economic information and manages re-search related to Arizona’s economy. The of-fice also provides information and analyses of trends, opportunities, best practices, market issues and department/program impacts. Office of Innovation and Technology The Arizona Department of Commerce serves as a catalyst to accelerate the growth of technology businesses throughout the state. The goal is to achieve dynamic eco-nomic development through innovation and technology. Resources provided by this office to Arizona entrepreneurs and high-tech firms include: • A statewide network of industry part-ners, university leadership and professional organizations that provide expertise to startup businesses. • A grant program specifically for entrepre-neurs to develop and commercialize global technology by accessing Small Business Inno-vation Research (SBIR) and Small Business Technology Transfer (STTR) federal funding. • Information and referrals from a wide spectrum of financial resources that provide capital for growing technology businesses. The 31-member Governor’s Council on In-novation and Technology is staffed by the Commerce Office of Innovation and Tech-nology. Charged with developing strategies to improve Arizona’s knowledge-based econ-omy, the council will deliver a technology blueprint that can be implemented by pri-vate and public sectors on a statewide basis. For more: see the Innovation & Technology link at www.azcommerce.com. ADOC: Commerce Department services help business owners Continued from Page 11B NOVEMBER 21, 2003 THE BUSINESS JOURNAL phoenix.bizjournals.com Entrepreneur’s Edge ■ 13B The first step to establishing a business in Arizona is to determine which form of business structure is most appropriate for your operations. To do this, an analysis of the various legal and tax-related implications associated with the forms of business structure must be conducted. In Arizona, as in all states, several busi-ness structures exist. The four most com-mon are the sole proprietorship, general and limited partnership, limited liability company and corporation. The state also recognizes a limited liability partnership. The following section provides a brief de-scription of each, including general advan-tages and disadvantages. An attorney and/or certified public accountant should be con-sulted for further information and advice on selecting the appropriate structure for your business. Once you have determined the legal struc-ture of your business, the next step is to com-plete the necessary registration requirements. Most businesses are required to register with the state and/or county in which the enterprise will operate, and these registra-tion requirements vary. Additionally, when establishing a business with two or more people, or as a corpora-tion, you will need an Employer Identifica-tion Number (EIN), also known as a federal tax identification number. There are various methods of applying for an EIN. • Apply online at www.irs.gov/businesses /small/. • By calling 800-829-4933. • By mailing your completed SS-4 from to: EIN Operations, Philadelphia, PA 19255. Sole Proprietorship The sole proprietorship is the simplest and most common form of business organization. A sole proprietorship is defined as a business that is owned by one individual. Arizona is a community property state and a husband and wife can operate as a sole proprietor. The owner is personally responsible for all debts of the firm. Profits are considered as personal income and taxed accordingly. Advantages of a sole proprietorship: • Minimum legal restrictions. • Ease of formation. • Low startup costs. • Sole ownership of profits. • Maximum freedom in decision-making. Disadvantages of a sole proprietorship: • Unlimited liability. • Less available capital than in other types of business organizations. • Relative difficulty in obtaining long-term financing. If the business is going to be a sole propri-etorship operating under a name other than your own, it is not required — however, it is an accepted businesses practice — to regis-ter the business name (commonly known as “doing business as” or “dba”) with the Ari-zona Secretary of State’s Trademark and Trade Name Registration Office or the County Recorder of the county in which you will operate. General Partnership A general partnership is an association of two or more persons joined together to carry on trade or business for profit. As in the sole proprietorship, each partner (spouse) is per-sonally responsible for all debts of the firm. Formal partnership agreements should be prepared by an attorney. In general, partner-ship agreements outline each partner’s share of income, gain, loss, deductions, credits and methods to dissolve the partnership under var-ious situations including death of a partner. Advantages of a partnership: • Ease of formation. • Direct rewards. • Broader management base. Disadvantages of a partnership: • Unlimited liability of general partners. • Divided authority in decision-making. • Difficulty in disposing of partnership in-terest. General partnerships transacting business in Arizona under a trade name, or a desig-nation not showing the names of the part-ners, should register the business name “doing business as” or “dba” with the Ari-zona Secretary of State’s Trademark and Trade Name Registration Office or the County Recorder of the county in which the business operates. Limited Partnership This form is similar to the general part-nership with several major differences. Some of these differences include: • At least one person must be identified as a general partner and be responsible for the operation and liability of the organization. • Limited partners are not active man-agers of the business and are not liable for the organization’s debts, etc. If the business is a limited partnership, you are required to register with the Ari-zona Secretary of State’s Trademark and Trade Name Registration Office or the County Recorder of the county in which the business is located. Limited Liability Partnership Limited Liability Partnership, or LLP, is a recent form of business entity in Arizona. For information regarding an LLP, contact an attorney or your local county bar associ-ation. The lack of clear legal precedents could be a disadvantage. If the business is a limited liability part-nership, you are required to register with the Arizona Secretary of State’s Trademark and Trade Name Registration Office or the County Recorder of the county in which the business is located. Limited Liability Company A Limited Liability Company, or LLC, of-fers businesses the protection of a corpora-tion and the single taxation feature of a partnership. Limited liability company advantages: • Limited disclosure of owners. • Limited documentation. • No advance IRS filings. • No public disclosure of finances. • Lower filing fees. • Professional LLCs are allowed. • Can build in buy/sell and owner compen-sation provision — no separate document. • Ease in transfer of ownership. • Can use special allocations between owners. • Can use different classes of owners. • Member (owner) involved in LLC oper-ation insulated from liability. • Can assign management to a nonmember. Limited liability company disadvantages: • Out-of-state business complicates status if the other state does not recognize LLC. • Large number of owners complicates status. • Death, bankruptcy or withdrawal of owner could cause problems. Tax provisions advantages: • No tax at LLC level. • Established and well-seasoned partner-ship rules apply. • No new federal ID number required when converting from partnership to LLC. • No withholding tax on owners’ salaries. • No double tax on appreciation. • More flexible restructuring possible. • No problem with retained earnings. • Easier structuring of debt. Business structures and registration Continued on Page 14B • Step-up in tax basis on death of member or sale of interest. • Less tax on owner’s retirement pay. • Tax-free distribution of assets possible. • Flexibility in contribution of assets. • Member’s “outside” expenses not classi-fied as miscellaneous itemized deduction subject to 2 percent disallowance. Tax provisions disadvantages: • Status of self-employed tax on owners uncertain. • Status of sales tax on owner/lessees un-certain. • Some gain on appreciation may be taxed as ordinary income. • No shifting of appreciation on contribu-tion of property to LLC. To register a Limited Liability Company, domestic or foreign, contact the Arizona Corporation Commission. Corporation A corporation, sometimes referred to as a “C Corporation,” is the most complex type of business organization. It is formed by law as a separate entity, completely distinct from those who own it, and has its own rights and responsibilities. In forming a corporation, potential share-holders offer money and/or property in ex-change for capital stock. The stockholders are the owners of the corporation, and the managers of the firm may or may not be stockholders. Businesses that incorporate in this state must file Articles of Incorporation with the Arizona Corporation Commission. Out-of-state corporations conducting business for 30 days or more in the state must file an Application for Authority to Transact Business as a foreign corporation. Advantages of a corporation: • Separate legal entity. • Limited liability for stockholders. • Unlimited life of the business. • Relative ease in raising capital. • Transfer of ownership stock sale. Disadvantages of a corporation: • Complex and expensive to organize. • Activities limited by the corporate charter. • Extensive regulation and record-keeping. • Double taxation — once on corporate profits and again on dividends. Incorporation of a business in Arizona involves the following steps: 1. Make sure the name you plan to use has been checked with the Arizona Corporation Commission and is available for use by your corporation. 2. Deliver the original and one or more copies of the Articles of Incorporation to the Corporation Commission. 3. Show a street address for the statutory agent (P.O. Box not accepted). 4. File Certificate of Disclosure (included in the incorporation application forms). 5. Pay the required fees. 6. Advise the commission, in writing, of the fiscal year to be used by the corporation. 7. Publish the Articles of Incorporation within 60 days after filing. The Articles must be published in three consecutive issues of a newspaper in gen-eral circulation in the Arizona county of the corporation’s known place of business. Within 90 days after filing, an affidavit of this publication must also be filed with the Arizona Corporation Commission. S Corporation Subchapter S Corporations, sometimes re-ferred to as “S Corporations,” elect not to be subject to federal corporate income tax. The shareholders, however, include their shares of the corporation’s items of income, deduction, loss and credit, or their shares of nonseparately computed income or loss, as part of their personal income. To qualify as an S Corporation, a corporation must meet the following: • It must be based in the United States. • It must have only one class of stock. • It must have no more than 75 share-holders. • It cannot have any nonresident alien as a shareholder. Recent changes in tax laws have liberalized Subchapter S rules; however, current restric-tions must be checked at the time of filing. Check with your attorney and certified public accountant for further information regarding the changes in law. Publications may have outdated information. A corporation that meets all of the above criteria can become an S Corporation if: 1. All shareholders consent to the corpora-tion’s election of S Corporation status. 2. The corporation has a permitted tax year. 3. IRS Form 2553, Election by a Small Business Corporation, is filed to indicate the choice of S Corporation status. The cor-poration must qualify as an S Corporation at the time it files Form 2553. For information on S Corporations, ob-tain IRS Publication 542. To incorporate your business, contact the Arizona Corporation Commission. Foreign Corporation If the business is a foreign corporation (an entity organized under the laws of another state or country), it also must register with the Arizona Corporation Commission. Foreign corporations applying for Au-thority to Transact Business in Arizona must comply with the following at the time of filing: 1. Make sure the name that you are using has been checked with the Arizona Corpo-ration Commission and is available for use by your corporation. The name may be re-served for 120 days while filing. 2. Deliver the original and one or more copies of the Application for Authority to the Corporation Commission. 3. Show a street address for the statutory agent (P.O. Box not accepted). 4. File Certificate of Disclosure (included in application forms). 5. Pay the required fees. 6. Advise the Corporation Commission, in writing, of the fiscal year to be used by the corporation. 7. Publish the Application for Authority within 60 days after filing with the Arizona Corporation Commission. The Articles must be published in three consecutive issues of a newspaper in gen-eral circulation in the Arizona county of the corporation’s known place of business. Within 90 days after filing, an affidavit of this publication also must be filed with the Arizona Corporation Commission. Additional information on incorporating may be obtained from the Arizona Corpora-tion Commission Corporations Division. Tax-Exempt Organizations/ (Nonprofit Corporations) There are more than a dozen different types of corporations approved by the Inter-nal Revenue Service as “Nonprofits.” These organizations usually are developed and operated exclusively for one or more of the following purposes: charitable, reli-gious, educational, scientific, literary, test-ing for public safety, fostering amateur sports competition (under certain restric-tions), or the prevention of cruelty to chil-dren or animals. The organization must be a corporation, community chest fund or foundation. A sole proprietorship or partnership will not qualify. Other organizations that may qualify in-clude: civic leagues; social welfare organiza-tions; labor, agriculture and horticultural or-ganizations; social and recreation clubs; and fraternal beneficiary societies. For a free IRS booklet on this subject, call 800-829-3676 and request publication 557, or visit the IRS Web site at www.irs.gov. To register a nonprofit corporation, con-tact the Arizona Corporation Commission. 14B ■ Entrepreneur’s Edge THE BUSINESS JOURNAL phoenix.bizjournals.com NOVEMBER 21, 2003 Business structures and registration Continued from Page 13B NOVEMBER 21, 2003 THE BUSINESS JOURNAL phoenix.bizjournals.com Entrepreneur’s Edge ■ 15B SOLE PROPRIETORSHIP Advantages Minimum legal restrictions Ease of formation Low startup costs Sole ownership of profits Maximum freedom in de-cision- making Disadvantages Unlimited liability Less available capital Relative difficulty in ob-taining long-term financ-ing No. of owners allowed Only one owner Arizona filing required Trade name registration Formation Nontaxable Taxation issues (Subject to federal in-come tax at entity level) No, tax items reported on Schedule C to personal return Liquidation Not applicable GENERAL/LIMITED PARTNERSHIP Advantages Ease of formation Direct rewards Broader management base Disadvantages Unlimited liability of general partners Divided authority Difficulty disposing of partnership interest No. of owners allowed At least 2; no upper limits Arizona filing required Certificate of limited partnership Formation Nontaxable, unless disguised sale or the partner is relieved from debt Taxation issues (Subject to federal in-come tax at entity level) No, if meet Internal Rev-enue Code tests Liquidation Nontaxable to the extent of a partner’s tax basis LIMITED LIABILITY COMPANY Advantages Single-member LLC treated as sole proprietor for taxation Limited disclosure of owners No advance IRS filings Ease in transfer of ownership Can use different classes of owners Lower filing fees Disadvantages Large number of owners complicates status Death, bankruptcy or withdrawal of owner could cause problems Doing business in other states may require filing individual tax returns in each No. of owners allowed At least 1; no upper limits Arizona filing required Articles of organization Formation Nontaxable, unless disguised sale or the member is relieved from debt Taxation issues (Subject to federal in-come tax at entity level) No, if meet Internal Rev-enue Code tests Liquidation Nontaxable to the extent of a member’s tax basis “C” CORPORATION Advantages Separate legal entity Limited liability for stockholders Unlimited life of business Relative ease in raising capital Transfer of ownership through sale of stock Ability to draw on exper-tise of more individuals Disadvantages Complex and relatively expensive to organize Activities limited by charter Extensive regulation, record-keeping requirements Double taxation of profits and dividends No. of owners allowed At least 1; no upper limits Arizona filing required Articles of incorporation Formation Taxable; however, if the transferors receive only stock and meet the 80 percent control test of the Internal Revenue Code, section 351, nontaxable except to the extent of debt relief Taxation issues (Subject to federal in-come tax at entity level) Yes Liquidation Taxable to both corpora-tion and shareholders “S” CORPORATION Advantages Liability limits for shareholders Unlimited life of busi-ness Disadvantages Restrictions on number of shareholders Limitations on ownership No. of owners allowed At least 1; upper limit is 75 Arizona filing required Articles of incorporation Formation Taxable; however, if the transferors receive only stock and meet the 80 percent control test of the Internal Revenue Code, section 351, nontaxable except to the extent of debt relief Taxation issues (Subject to federal in-come tax at entity level) No, however any shareholder may cause loss of tax status Liquidation Generally nontaxable at corporate level and taxable at shareholder level via flow-through of corporate tax items Comparison of Business Structures Source: Gammage & Burnham PLC 16B ■ Entrepreneur’s Edge THE BUSINESS JOURNAL phoenix.bizjournals.com NOVEMBER 21, 2003 Naming the business is one of the most critical steps a business owner will take. Unfortunately, in the startup process, many people do not consider the impor-tance of name selection and its role in the success of their business. Professional assistance is available from attorneys, public relations or advertising or-ganizations, marketing consultants and trademark agents. Several books and magazine articles are available from local libraries to help you select a name. Terms used to describe a business name in-clude trade name, “doing business as” (dba) and fictitious name. Here are some considerations in selecting a business name: • The name should be easy to understand, spell, pronounce, remember and find in the telephone directory. • Will it depict the image you want for the business? This may include the level of ser-vice, speed, promptness, quality, skill, low cost, timeliness, experience, effectiveness, etc. • Can your product or service be listed as part of the name (such as health food or marketing consultants)? • Using individual letters or an acronym may make the name very difficult to find in the telephone directory. • The terms Corporation, Corp., Incorpo-rated, Inc., LLP, etc., may be used only for businesses registered accordingly. • Unusual spellings such as “Kar” for Car may cause your customer difficulty in find-ing your business name or listing. • Avoid names similar or identical to those used by another business. Once a name is selected, there are three places you can register your business name: • The Arizona Secretary of State’s Trade-mark and Trade Name Office: 1700 W. Wash-ington St., Seventh Floor, Phoenix, AZ 85007. For more information: 602-542-6187, 800- 458-5842, or online at www.sosaz.com. The Southern Arizona Office also accepts Trade Name and Trademark applications and is located at 400 W. Congress, North Building, Room 252, Tucson, AZ 85701. The office also may be contacted by telephone at 520-628-6583. A certificate of registration is mailed in about 10 business days. • The County Recorder will register a busi-ness name. This involves filing a simple form (which may be obtained at a local sta-tionery or legal-forms store) and remitting with the required fee. • If incorporating your business, contact the Arizona Corporation Commission at 602-542-3230 or visit the office at 1300 W. Washington St., Phoenix, AZ 85007. The Arizona Corporation Commission’s Web site can be accessed at www.cc.state.az.us. Additional resources Copyrights Copyright Office, Room 401 James Madison Building Washington, D.C. 20540 202-707-5959 or 800-688-9889 Patents Commissioner of Patents & Trademarks Washington, D.C. 20231 800-786-9199; www.uspto.gov Picking a name is an important step ■ HOW TO HOW Arizona Small Business Association help you grow your business can the ? Business Education Workshops/Seminars Networking Mixers Workers' Comp Dividend Plan Health Insurance Communication Services Financial Service Referrals Monthly Special Interest Round Tables Home-Based Business Council Members Website List Newsletter & Online Membership Directory Small Business Conferences Legislative Representation Purchasing & Lending Fairs Conference Centers Business Resource Referrals 4444 E. Grant Road #119 Tucson, AZ 85712 520-327-0222 Fax 520-327-0440 codowd@asba.com 4130 E. Van Buren St., #150 Phoenix, AZ 85008-6996 602-265-4563 Fax 602-265-3681 info@asba.com Visit us today www.asba.com NOVEMBER 21, 2003 THE BUSINESS JOURNAL phoenix.bizjournals.com Entrepreneur’s Edge ■ 17B How do I file my business name? The registration of a trade name is not legally required in Arizona but is an ac-cepted business practice. Trade names, also known as business names and dba’s, can be filed with the Office of the Secretary of State. Although the office will search its data-base for similar names on file, we recom-mend that customers follow the guidelines found at the Phoenix Public Library before submitting the trade name application. Registration forms are available to down-load at www.sosaz.com. The filing fee is $10 and must be in the form of a check, cashier’s check, money order or cash. Currently, credit-card payments are not accepted. How do I search the Secretary of State database for a business name? The Office of the Secretary of State can conduct a preliminary name check either over the phone (602-542-6187) or via e-mail (trades@mail.sosaz.com). It is recommended that you wait to order stationery or other office supplies until you receive your trade name certificate in the mail. Corporations and Limited Liability Com-panies should check name availability with the Arizona Corporation Commission at 602-542-3230. Construction companies should check name availability with the Registrar of Contractors by calling 602-542- 1525. Mortgage companies should check with the Department of Banking by calling 602-255-4421. How do I get a federal trademark? To file for a federal trademark, contact the U.S. Patent and Trademark Office at 2021 Jefferson Davis Highway, Arlington, VA. General information requests should be ad-dressed to General Information Services, U.S. Patent and Trademark Office, Crystal Plaza 3, Room 2C02, Washington, D.C. 20231. Questions regarding federal trademark registration can be answered at 800-786- 9199 or on the Internet at www.uspto.gov. Arizona residents also may conduct fed-eral trademark searches at the Noble Sci-ence and Engineering Library at Arizona State University, a U.S. Patent and Trade-mark Depository Library (www.asu.edu/ lib/noble/ptdl). For more: 480-965-6164. What is the statutory authority? Statutory authority for the registration of trade names can be found in Arizona Re-vised Statutes §44-1460 through §44- 1460.05. What if my trade name is rejected? The general rule governing trade name ac-ceptability is found in A.R.S. §44-1460.01(B). It states “The Secretary of State shall not file an application for the registration of any trade name, title or designation if it might mislead the public, or is not readily distin-guishable from names, titles or designations previously registered under the provisions of this article.” Are there any additional business-related functions offered by the Secretary of State? In addition to the initial registration of trade names, the Office of the Secretary of State is the centralized filing office for the registration of Trade/Service Marks, Lim-ited Partnerships, Charitable Organiza-tions, Telephone Solicitors, Contracted Fundraisers, Uniform Commercial Code fil-ings, Athlete Agents, Intergovernmental Agreements and Public Meeting Notices. The agency also provides Notary Public Commissions and the maintenance and publishing of the Administrative Code and Register. Forms and filing information are available online at www.sosaz.com or by calling 800- 458-5842. Trade Names ■ Customers are encouraged to file descriptive names. There are roughly 350,000 names registered at the state level as trade names, trade-marks, partnerships, LLCs or corpora-tions. ■ Adding a city, state or direction does not create a more descriptive name. ■ Adding names such as corporation, company, services, manufacturing, as-sociates, store, enterprises, associa-tion, etc., to the end of a name does not create a more descriptive name. ■ “Made-up” names (words that are not found in a dictionary) should not be created for the purpose of a more descriptive name. ■ The Office of the Secretary of State suggests that customers perform ex-tensive, independent research before submitting an application for registra-tion of a trade name. ■ The Office of the Secretary of State does not warrant or guarantee that chosen names will not conflict with ex-isting business names. ■ In the event of a name conflict, it is advisable to seek legal counsel since the Office of the Secretary of State is a filing agency and not authorized to resolve legal matters involving trade name conflicts. ■ Send a check or money order to: Secretary of State Business Services — Trade Names 1700 W. Washington St., Seventh Floor, Phoenix, AZ 85007 For a trade name application, see Page 72. Filing guidelines By mail: Office of the Secretary of State 1700 W. Washington St., Seventh Floor Phoenix, AZ 85007 602-542-6187 or 800-458-5842 (state of Arizona only) In person: Secretary of State Customer Service Center 14 N. 18th Ave. (southwest corner of 18th Avenue and Adams), Phoenix, AZ 85007 Hours: Monday-Friday, 8 a.m. to 5 p.m., except holidays or Office of the Secretary of State 400 W. Congress, Ste. 252 Tucson, AZ 85701 Where do I file? 18B ■ Entrepreneur’s Edge THE BUSINESS JOURNAL phoenix.bizjournals.com NOVEMBER 21, 2003 Below are guidelines intended to help you develop and write a business plan. Your business plan is very im-portant to your success. It represents your “road map” toward a successful venture. These guidelines do not address every as-pect of every possible business plan. You should consider more questions than those that are posed in each section. Be sure to ask many questions — your success depends on the completeness of your planning process. Each numbered section below (I, II, III, etc.) should start a new section of your plan, while other lettered items within each section will each be one to three paragraphs long. I. Title Page The title page should be double-spaced, horizontally centered and positioned just above the center of the page. It should con-tain the following items: business name, ad-dress, phone number and owner(s) name(s). II. Table of Contents The table of contents should list the title of each section of the document and indicate the page number where each is located. It also should list specific support items (ap-pendices) by name. This page will be done last, since it requires the entire document as input. It allows the reader to quickly locate specific sections. III. Business Concept or Executive Summary This section should be a one-page expla-nation of what your business is and its com-petitive advantage. Here you will provide a clear description of the industry in which you are competing and a precise explanation of your business’ unique qualities that set it apart from others that are competing for the same customers. This section should include key points from marketing, operational and financial plans. Your explanation should answer these questions: • What does your business do? • In what general market does your busi-ness compete? • What quality/price image will it have? • What customer needs are met? • What makes it unique from competition? • Why will it be financially successful? IV. Marketing Plan This section should contain a narrative de-scription of these factors: A. Products/Service • What needs/benefits are sought by your customers? • Specifically how does your product meet those needs/benefits? • How is your product/service unique from the competition? • What customer services do you provide to support the central product? B. Target market First, determine if your focus is on con-sumers (end-users) or other businesses. Then tailor your responses to the appropri-ate category below. • What needs/benefits are sought by your customers that your product/service satisfies? • When and under what circumstances does your customer buy your product or service? • Describe the volume and frequency of your customer’s purchases. • Based on available data, what is the ex-pected volume of your target market? • Of that target market, what is the pro-jected volume of actual paying customers? • Describe your customer base. Consumers: It is important for you to de-velop a clear, mental picture of your ideal customer. Describe your potential customers using the following factors: age, sex, income, edu-cation, location, occupation, interests, buy-ing habits, and goals and aspirations. Businesses: If selling to a business, your description should include: type of busi-ness; size of business; priority placed on purchasing your product; projected image of the business; markets that the business services; its trade organizations and mem-berships; and the trade publications read. B. Competition A description of your competition should answer the following questions: • Who are your major competitors? • Why are they successful? • What alternatives are there to your product? • How do alternatives impact your sales? • What distinctive differences separate you from your competitors? • Why should customers leave your com-petitors to choose your product? • What market share do you expect to get? C. Location analysis Describe your business location and how it will enhance the sale of your product or service. Your description should answer the following questions: • What strategic advantages do you have at this location? A solid business plan is a must Continued on Page 19B NOVEMBER 21, 2003 THE BUSINESS JOURNAL phoenix.bizjournals.com Entrepreneur’s Edge ■ 19B • Is there opportunity for expansion? • What are the neighboring businesses? • Do they complement/detract from yours? • Are renovations needed? At what cost? • What is the zoning classification? • Is the neighborhood stable, changing, improving, deteriorating? How? • How is customer access, parking, etc.? NOTE: Include in the appendix a photo-graph of the building, a drawing of the im-mediate area showing road access and iden-tity of adjoining businesses and a drawing of the floor plan of your business. D. Price determination A description of the price structure for your product or service will answer the fol-lowing questions: • How does the unit cost of your product compare to the relative value seen by the customer? • How does your price compare with the competition’s? • Why will customers pay your price? • What image will this price project? • What special advantages do your cus-tomers get that is included in the price? • Will you offer credit terms? E. Marketing approach A description of your marketing effort should answer the following questions: • What are the test market results? • Where do your customers seek informa-tion about purchasing your product/service? • How will your image be clearly and con-sistently conveyed to potential buyers? • Which media are most suitable? • How will you evaluate the effectiveness of each advertising and promotional effort? • How will you use/evaluate a sales staff? V. Management Plan or Operational Plan This section contains a description of who will run the business and how they will do it, including the following: A. Management team A description of how the business will be managed will answer these questions: • What business management background do you have? • How will that drive the business? • How is the experience of key people re-lated to this type of business? • What legal form will you use — corpora-tion, partnership, proprietorship, etc.? • Who does what? Who reports to whom? • What resources are needed and who will provide them (accountant, lawyer, etc.)? NOTE: Include in the appendix the résumés of key personnel. B. Employee relations A description of your methods for hiring, training and communicating with your staff will answer these questions: • What are your personnel needs? • What skills will be required? • How will you hire and train? • What salary/benefits will be provided? • How will you determine wage increases? • What personnel policies will be provided? C. Operational controls A description of the kinds of management systems and how they will be used will an-swer these questions: • What is your production capacity? • What operating advantages do you have? • What elements are key to your success? • What will be indicators of success? • How will you monitor these factors? • What hazards do you anticipate for your business? What protection and/or alternate plans do you have? • What policies will you establish for the operation of your business? VI. Financial Plan A description of how your business will be financed and how you will maintain a sound financial condition will answer the following questions: A. Current funding requirements • How much money will be needed for starting your business? • What will be the sources of startup capital? • What business and personal assets will be pledged as collateral? B. Use of funds • How will the money be spent (working capital, capital expenditures, etc.)? • How will borrowed funds make your business more profitable? C. Long-range financial strategies • How will you liquidate your investors’ position? • What terms of repayment are feasible? • What will you do if repayment cannot be accomplished as planned? D. Financial statements To support this section, several financial statements will be required, such as the fol-lowing: • Personal financial statement of owner. • Business startup costs. • Pro forma cash flow analysis (expected). • Balance sheet (actual or proposed). • Income statement (actual or proposed). • Capital equipment list. VII. Strategic Plan It is very important to include a descrip-tion of where you want your venture to be in the next few years and how you intend to achieve those goals. This strategic plan should focus on years two through five and include descriptions of the following items: • Strengths within your organization. • Weaknesses within your organization. • Opportunities available to you. • Threats impeding you. Using these four factors, you should de-scribe strategies that use your strengths to take advantage of opportunities and over-come threats; and strategies to reduce weak-nesses and avoid threats to your business. The strategies should identify intermedi-ate goals (yearly) and the marketing, man-agement and financial resources that will be used to achieve these goals. For assistance in preparing your business plan, visit www.azcommerce.com and click on Small Business Services. Tips for writing your blueprint Consider the following when constructing a business plan: ■ The business opportunity is pre-sented in a clear, exciting manner. ■ The entrepreneur understands that projections are, at best, hopeful guesses and tries to base the projec-tions on realistic assumptions. ■ The entrepreneur estimates, as much as possible, the pitfalls of the business as well as its strengths. ■ The plan is carefully proofread and edited until it does not contain any errors in grammar or math. ■ The entrepreneur knows the plan by heart before making a presentation to a potential lender or investor. ■ The company has taken the time to study and understand its competitors and can address their strengths and possible weaknesses. ■ The plan contains enough informa-tion to tell a complete story about the company, and it is presented in a concise, tight writing style. ■ The plan does not make exagger-ated claims about the product or the management. ■ The plan shows why the company and its products are different and significantly better than what is out there in the marketplace. Source: The Capital Connection, www.capital-connection.com Continued from Page 18B 20B ■ Entrepreneur’s Edge THE BUSINESS JOURNAL phoenix.bizjournals.com NOVEMBER 21, 2003 Economic Development Information Centers: Apache Junction Public Library 480-474-8555 Academic Library Arizona Western College/NAU-Yuma 928-344-7777 Casa Grande City Library 520-421-8710 Chandler-Gilbert Community College Learning Resource Center 480-857-5138 Chandler Public Library 480-782-2803 City of Mesa Library 480-644-3721 Clifton/Greenlee County Public Library 928-865-2461 Eastern Arizona College Library 928-428-8304 Estrella Mountain Community College Library 623-935-8072 Flagstaff City-Coconino County Library District 928-779-7670 Florence Community Library 520-868-9471 Glendale Public Library 623-930-3530 Globe Public Library 928-425-6111 Maricopa County Library District 602-506-2957 Mohave Community College Library 928-453-5809 Mohave County Library District 928-692-2665 Nogales City-Santa Cruz County Public Library 520-287-3343 Northland Pioneer College Library Learning Resources Center 928-524-7320 Peoria Public Library 623-773-7556 Phoenix Public Library 602-262-4636 Prescott Public Library 928-777-1500 Scottsdale Public Library 480-312-2476 Sierra Vista Public Library 520-458-4225 Tempe Public Library 480-350-5511 Tucson-Pima Library 520-791-2647 Yavapai College Learning Resource Center 928-776-2265 Yuma County Library District 928-782-1871, ext. 106 Visit your local library, it’s a great resource for starting or running a busi-ness. Librarians will help you find information on every phase of business ownership, information on writing the business plan, and electronic databases where you can research industries and competitors. The library provides access to sub-scription databases you can use in the library, office or home when you obtain a library card and a PIN number. (Check your local library for details). In addition, libraries provide free ac-cess to the Internet. Many libraries pre-sent free programs, workshops and book lists on business topics. For a list of Arizona libraries, visit the Arizona Library Association Web site at www.azla.org/azinfo/libraries.html. Library Resources Visit your local library Developing a business plan? Tracking industry and market trends? Re-searching other factors that may af-fect the success of your enterprise? Start your research on these and other key business development issues with your local Economic Development Information Center (EDIC) library. The Arizona State Library, Archives and Pub-lic Records was awarded federal grant funds to initiate the EDIC program in 1992. There cur-rently are 27 EDICs based in public and com-munity college libraries throughout the state. EDICs provide the business community and li-brary users with: • Business information from a core collec-tion of business reference materials. • Research experts familiar with the local economy and the community. • Referrals for business information and as-sistance. • Database searching and Internet access, assistance and training. Through a statewide pilot project, the Ari-zona State Library, Archives and Public Records recently enhanced EDIC services by providing an online business database that covers the latest information from top news-papers such as the New York Times, Wall Street Journal and USA Today. EDIC library customers can use this database for identifying market and industry trends, tracking potential customers and competitors, and analyzing business strategies. For more: 800-255-5841, 602-542-5841, or contact one of the EDIC libraries listed below. NOVEMBER 21, 2003 THE BUSINESS JOURNAL phoenix.bizjournals.com Entrepreneur’s Edge ■ 21B BY SUSAN BROOKS Special to The Business Journal So, you want to be a business owner. You think you have an entrepreneurial spirit. You are sure that now is your time to be in charge of your own destiny. You start with baby steps, getting valida-tion from family and friends, guidance from advisers. But you need a business plan. You need to know your costs — down to the penny. You need a compassionate banker, a disciplined CPA and an over-protective attorney. Now you think you’re ready? Whoa! Instead of focusing on what’s next, you have to ask yourself what’s first. A pas-sion to serve, whether it’s cookies or wid-gets, must start with a vision — your vision. Who is your customer? Who do you want to serve, and how? Where do you see the greatest need, the hole in the marketplace that your product/service can fill better than anyone else? What are the pictures in your mind that define your product/service: your company name and logo, your merchandis-ing and image and your core values that de-fine and differentiate your product/service from all the others already in the market-place? When you focus on vision, you soon realize you have opinions about things you didn’t even realize mattered before. Having been in the trenches as a business owner for more than 25 years, I’ve learned these lessons. Knowing how to grow a busi-ness, how to best serve customers and em-ployees, and how to keep integrity of the vi-sion — these are the questions that have kept me awake all hours of the night and, fortunately, have taught me lessons that now help me guide budding entrepreneurs back into the light of day. The integrity of your vision always is being tested. There are several non-nego-tiable caveats in my vision that I held onto tightly. Honoring my family history and the integrity of our recipes to use fresh and real ingredients meant that our cookies have a limited shelf life. I often was advised to add preservatives to our cookies. No way, no how! Our name, Cookies from Home, declared this truth from the get-go. Our niche had to focus on immediate munch-ing, emphasizing the quality and freshness as an advantage rather than a limitation. Our cookies are homemade by people, not ma-chines, and every step of our process involves the human and “back to basics” philosophy. Vision defines your passion. My vision was to make our world a better place by treating customers to the best chocolate chip cookies and service. Everyone loves cookies, right? Yes, but if I took my limited dollars and tried to market to “everyone,” I would have disappeared long ago with all the other startup com-panies that failed. I needed to be much more specific, much more defi-nite about the cookie lovers I wanted to serve. Look at Southwest Air-lines. Its niche is clearly defined: cheap fares and lots of them. No empty promises of gourmet meals and first-class seats. When customers book a Southwest flight, they “buy in” to the cattle calls and peanuts. Southwest Airlines knows what it does best and doesn’t try to be what it is not. Your vision holds your truths. When you stay focused on that, your next step and bot-tom- line direction become clear. This is your vision, your destiny, which owns lessons learned, triumphs celebrated and every ounce of risk that made it happen. Susan Brooks, co-founder and president of Cookies From Home, also is a professional speaker and consultant. She can be reached at www.servesyouright.net or tobserved@aol.com. Vision, first and always Susan Brooks ■ Daily business headlines sent to you via e-mail Get The Phoenix Business Journal’s NEW e-mail headline service for breaking local business stories every day at 3pm. Read the news before the next day’s morning paper. It’s FREE in your e-mail. To sign up, point your browser to phoenix.bizjournals.com and click on E-MAIL ALERTS to get news that’s strictly business, strictly local. 22B ■ Entrepreneur’s Edge THE BUSINESS JOURNAL phoenix.bizjournals.com NOVEMBER 21, 2003 CHAPTER 2 Location & Regulations 2• BY SUSAN MERCER HINRICHS Special to The Business Journal Location, location, location. Like real estate, the 3L’s apply in busi-ness as an entrepreneur decides where to physically establish an enterprise. Three other words — regulations, licens-ing and permitting — also are key to start-ing a business off on the right foot and growing it into a thriving enterprise. Whether you’ve launched a home-based business or staked out a promising com-mercial site, you’ll need to comply with li-censing and permitting requirements. A business owner looking at a downtown redevelopment site may wrestle with leasing or buying the property, for example. That’s where the Small Business Develop-ment Center can come into focus. Mike York, the SBDC’s state director, said em-ployees there can help people understand commercial leasing. “It’s not astrophysics; it’s just business,” York said. “But it can be pretty intimidating.” He said an SBDC counselor can help translate commercial real estate jargon and forms for a business person who is deciding whether to rent or buy. Economic development officials stand as a ready source of information, too. Cities and counties may offer credits or incentives for businesses choosing to locate within special sites, sometimes known as enterprise zones or development areas. In southwestern Arizona, the cities of Yuma, Wellton, Somerton and San Luis have teamed with Yuma County and dozens of local businesses to form the Greater Yuma Economic Development Corp. According to the GYEDC Web site, www.gyedc.org, all of Yuma County is designated as an enterprise zone — an area offering income-tax incen-tives for businesses choosing to locate there. Miguel Bravo, a GYEDC business develop-ment representative, said the group often has contact with small and light-manufacturing companies from Southern California where owners are looking to move to a more af-fordable area. In talking with prospective relocators, Bravo said the GYEDC looks at things such as the number of jobs to be created, starting wages offered, and benefits to be rendered as the public-private partnership members negotiate to offer relocation incentives. “Our goal is to provide all the information they (prospective businesses) need and as-sist them,” Bravo said. Likewise, when it comes to navigating the process for permitting and licensing, the SBDC’s York said workers there can help, too, whether through the organization’s on-going workshops and seminars statewide, or a one-on-one question-and-answer basis. Arizona is a “virtual nirvana to do busi-ness in,” York said. Despite that, he said li-censing and permitting could — and should — be easier to navigate. According to York, the SBDC annually counsels about 3,500 people in Arizona on regulatory and licensing matters, among other issues. Over the past 15 years, the SBDC has assisted some 100,000 people in various capacities through its ongoing sem-inars and workshops statewide. Individualized business counseling is of-fered without cost, York said. Workshop sessions can involve a nominal charge. Terree Wasley, vice president of entrepre-neurial services at the Greater Phoenix Chamber of Commerce, agrees with York that the gauntlet of permits for establishing and operating a business can be over-whelming. Regulatory issues “are a problem,” said Wasley, citing business-owner frustration with city regulations and taxation matters. One particularly troublesome area now, she said, is enforcement of municipal smoking bans in eateries. The Greater Phoenix Chamber also acts as an ongoing legislative lobbying force to make regulations and taxation issues more business-friendly, Wasley said. Another regulatory information source is online. A visit to the Arizona Department of Revenue’s Web site, www.revenue.state .az.us, gives entrepreneurs a comprehensive picture of what startups and growing com-panies need to know about building a busi-ness in Arizona. One link on the home page leads to gen-eral small-business information; another lists all the organizations and activities that are required to obtain an employer identifi-cation number; and another lists a guide, ti-tled A-Z for Taxes for Small Business, where tax obligations are outlined. Once armed with the necessary permits and licenses, entrepreneurs take another step toward fulfilling their independent business dreams. NOVEMBER 21, 2003 THE BUSINESS JOURNAL phoenix.bizjournals.com Entrepreneur’s Edge ■ 23B The choice of a location may have a profound effect on the success of your business. Therefore, this aspect of your planning should be given great consideration. Some of the items to re-search and assess include the following: Home-based Businesses must comply with the same li-cense and permit requirements as a com-mercial location, including applicable sales tax licenses, trade or professional licenses, residential zoning and homeowner as-sociation rules. Among the factors to consider in obtaining approval is whether you will increase traffic substan-tially, the ease of access for your clients and suppliers, and if there is any pollution cre-ated, including excessive noise. Buy or lease One of the first decisions you must make is whether to purchase property and con-struct a new building, modify an existing building or lease a site. There are many issues to consider in mak-ing this decision. You should consult with an attorney, accountant and real estate pro-fessional for assistance and information. Client base Where are your current and targeted cus-tomers located? Use a map and pins to iden-tify client locations. This information will assist you in selecting a site. Traffic count Determine the traffic passing potential sites. You can make this study or, in many cases, the city, county or state traffic engi-neers will provide official counts of auto traffic. Commercial real estate agencies often have considerable research data on this subject. Which side of the street Some retail products and services are most attractive to customers on their way to work. Examples include coffee and pastry shops. Some chambers of commerce have very detailed studies of traffic, existing business data and other valuable information. Con-tact the local chamber for additional infor-mation. Demographics What changes are taking place in that area? Is the population age shifting? What is the income level? Does the local popula-tion fit your target market profile? The U.S. Census Bureau provides information on these and other related subjects. The tele-phone number is 800-253-1882. The Web site is: www.census.gov. In addition, the Ari-zona Department of Commerce, Commu-nity Development Division Web site, www .azcommerce.com, provides community and county profiles. Local chambers of commerce and libraries also usually have information on area demographics. Type of site Commercial locations include individual or stand-alone buildings, neighborhood strip centers with a few stores, power cen-ters with a major tenant and several com-plementary businesses, and regional malls, usually with three or more major anchor stores. Nearby stores Are neighboring stores compatible or complementary to your business? Will they help attract business to your establishment? Parking Does the site provide adequate parking for your customers and employees? Will your customers have to compete with employees of the area businesses to find a place to park? Is the parking lot easy to enter and exit? What is its overall condition? Is it well illuminated at night? Is adequate parking provided for handicapped customers? Condition of the building Carefully check the condition of the build-ing and calculate the modifications re-quired to meet your needs. Do the building and property meet current zoning and other local requirements? Has the owner main-tained the building and property or is the lo-cation in need of repair? What do other ten-ants say about the owner’s willingness to make repairs and do preventive mainte-nance? Total cost of the lease Cost of the lease is calculated a number of ways. Some items to consider include: • Exterior building maintenance. • Tenant improvements. • Common area expenses. • Insurance. • Utility costs. • Security services. • Taxes. • Flat lease rate and/or percentage of your business revenue. • Increase in lease based on changes in the consumer price index. Terms of the lease Lease terms can be confusing to the busi-ness owner. Many commercial brokers pro-vide a glossary of terms commonly used in leasing space to businesses. Other consider-ations include dispute resolution, required hours open for business, and whether future expansion is possible at reasonable rates. History of the site Why is the potential location available? How long has the site been vacant? What caused the previous tenant to leave? If sev-eral businesses have failed at that site, you may wish to carefully consider your odds for success. Professional representative You should obtain professional assistance in negotiating a commercial lease. Leasing agents or brokers fall into two categories — those who represent building owners and those who represent tenants. Lease negotia-tions may directly affect the success or fail-ure of your business. You should obtain the professional assistance of your own broker, attorney, accountant, insurance agent, banker and architect. While many of these items may not seem important when you are beginning to look for a site, they are extremely important for the long-term success of your business. The right location makes a difference ■ HOW TO 24B ■ Entrepreneur’s Edge THE BUSINESS JOURNAL phoenix.bizjournals.com NOVEMBER 21, 2003 Small businesses performing services may need to be licensed, bonded and/or insured. That is especially true for commercial and residential construc-tion contractors. A bond or surety is a third-party obligation promising to pay if a vendor does not fulfill its valid obligations for work under a con-tract. It is not an insurance policy, said Brian Pugh, surety-underwriting manager for CNA Surety in Phoenix. “It’s a financial guarantee that a vendor will honor a business contract,” he said. “In-surance is a two-party contract where the contractor buys a policy that pays for claims or losses.” With a surety, the bond guarantees the busi-ness is going to complete the project. If the business fails, the surety company guarantees fulfillment of the business’ obligation, then the vendor pays back the surety company. So it’s more of a credit function, he said. Although there are various types of bonds, a few of the most common are: • Taxpayer bond: Contractors that must be licensed with the Registrar of Contrac-tors or licensed as dealers of manufactured housing (mobile homes) must post a bond with the Department of Revenue before a Transaction Privilege Tax license will be is-sued, unless the contractor qualifies for an exemption from the bonding requirement. • Performance bond: Guarantees that a business will perform work in accordance with the terms of a contract. • Bid bond: Guarantees that a business will perform the work if they win a bid. • Indemnity bond: Promises to reim-burse loss incurred if the business fails to perform, or if the business fails to pay other vendors or subcontractors in the perfor-mance of the contract. • Payment bond: Promises a business will pay all subcontractors and material providers used in the performance of the contract. According to Alan Felber, chief of licens-ing for the Arizona Registrar of Contractors, license bonds are required by statute in Ari-zona for construction contractors to obtain or renew a license. The Registrar of Contractors promotes quality construction by Arizona contractors through a licensing and regulatory system designed to protect the health, safety and welfare of the public. Bonds may be obtained from an insurance agent or an insurance company authorized by the Arizona Department of Insurance to operate in Arizona and issue contractor’s li-cense bonds. Since bonds do not pay for property dam-age or personal injury on the job, business owners also need to consider health and life insurance, as well as workers’ compensa-tion coverage. In Arizona, all businesses that have even one part-time employee must, by law, carry work-ers’ compensation insurance, and it must be in place before the first person is hired. The Industrial Commission will close down those operating without workers’ compensa-tion insurance and charge them a fine, said Chris Kamper, vice president of claim ser-vices for the State Compensation Fund (www.statefund.com). At present, the penalty ranges from $1,000 to $10,000 depending upon the number of prior violations. “When a business doesn’t have insurance and a worker gets hurt on the job, the com-pany loses its exclusive remedy doctrine,” Kamper said. “The doctrine provides that if the employer has workers’ comp coverage, then the injured worker’s sole remedy for a workplace injury is workers’ compensation benefits, which in-clude medical benefits and lost wages.” The State Compensation Fund is a program operated on behalf of the state of Arizona. Without it, the employer loses the exclu-sive- remedy protection, and the injured worker can elect to either file a workers’ comp claim, or sue the employer for tort damages such as lost wages, medical bills and pain and suffering in Superior Court. “So, in addition to all the other coverages necessary for operating a small business, get your workers’ comp insurance in place,” Kamper says. “It’s extremely important.” Protect your business Make sure you’re licensed, bonded and insured NOVEMBER 21, 2003 THE BUSINESS JOURNAL phoenix.bizjournals.com Entrepreneur’s Edge ■ 25B BY SCOTT CLARK Special to The Business Journal If you own a business, you eventually can expect an unannounced visit from an OSHA inspector. These visits aren’t social. These inspectors are charged with inspecting your business for potential health and safety violations, and they will expect access to the entire facility. OSHA stands for Occupational Safety and Health Administration. It is organized within the U.S. Department of Labor and is charged with setting and enforcing workplace safety and health standards. OSHA inspectors conduct periodic, random inspections of businesses. The agency also fo-cuses on businesses where there have been se-rious accidents or reports of imminent job dangers, accidents or illnesses. In fiscal year 2001, federal and state in-spectors conducted about 92,000 inspec-tions, found 220,000 workplace violations and assessed more than $156 million in penalties. Of this total, 82 percent were clas-sified as “willful” or “serious” violations. However, if you have a small business, have had no previous violations, have not willfully violated the regulations and demonstrate good faith in correcting the deficiencies, penalties may be reduced or eliminated. OSHA has four primary strategies: 1. Lead-ership — leading the dialogue on occupa-tional safety and health; 2. Strong, fair and effective enforcement; 3. Outreach, education and compliance assistance — providing training and ed-ucation materials; and 4. Partnerships — currently numbering more than 900. If your business has 11 or more employees, you are required to keep records of work-related injuries or ill-nesses. However, work-places in low-hazard in-dustries such as retail, service, finance, insurance and real estate are exempt from these record-keeping requirements. All employers must post the federal (or state) OSHA poster to provide their employees with information on their safety and health rights. You may order a printed copy from OSHA Publications by calling 800-321-OSHA, or you can download and print a copy from the OSHA Web site home page at www.osha.gov. The OSHA Web site contains a wealth of information on various health and safety topics, so it is well worth a visit. In fact, if you as an employer would like to secure help from OSHA to fix hazards in your workplace, you may wish to contact the OSHA Consultation Program Office in your state for free on-site assistance in identify-ing and correcting hazards or setting up safety and health programs. You also can contact the OSHA Area Of-fice nearest you to speak to the compliance assistance specialist about training and ed-ucation in job safety and health issues. Another option is OSHA Advisors, interac-tive software that walks you through spe-cific OSHA standards for things such as as-bestos or help identifying potential hazards throughout your workplace. All of this information is available on the OSHA Web site, as well as additional infor-mation on specific OSHA topics. If you are a worker with a safety concern, you can call the nearest OSHA Area Office or you can file a complaint online through the OSHA Workers’ Page. If you own a business, it’s only a matter of time before the OSHA inspector comes calling. Scott Clark is a business consultant and columnist based in Cedar Rapids, Iowa. He can be reached at www.saclark.com. Be prepared for a visit from OSHA Scott Clark ■ BY TOM R. REX Special to The Business Journal The old Standard Industrial Classifica-tion (SIC) has been replaced with the new North American Industry Classi-fication System (NAICS). The SIC first was created in the 1930s and periodically was revised over five decades. NAICS represents a significant change in the classification of industries. The first data released using NAICS in 1999 was the result of the 1997 Economic Census. The phase-in of NAICS for other federal govern-ment programs is nearly complete. NAICS was created as a joint effort be-tween Canada, Mexico and the United States. Differences in production processes largely act as the demarcation between in-dustries. Special attention was given to emerging industries, service industries in general and industries engaged in the pro-duction of advanced technologies. The goods/services distinction is not explicitly reflected in NAICS, but five of 20 sectors are largely goods-producing while the other 15 are entirely services-producing. Ten (one-digit) divisions comprised the SIC. These were subdivided into two-digit major groups, three-digit industry groups and four-digit industries. NAICS consists of 20 sectors progressively subdivided into three-digit subsectors, four-digit industry groups and five-digit indus-tries. The definition of most five-digit in-dustries is the same in the United States, Mexico and Canada. In some cases, a sixth digit is added to U.S. industries. As implied by the greater number of digits, NAICS provides more detail on a larger number of economic activities. In the United States, 1,170 industries are defined, 358 of them being new industries. As NAICS has been phased in, discontinu-ities in the historical series have occurred in some cases. For example, nearly one-third of the former four-digit SICs are not deriv-able under NAICS. The table on Page 26 compares the SIC di-visions to the NAICS sectors. The SIC’s transportation, communications and public utilities (TCPU) division was split into three NAICS sectors. Similarly, the SIC’s FIRE (fi-nance, insurance and real estate) division was divided into two NAICS sectors. The largest SIC division — services — has been split into seven sectors. The last NAICS sector shown in the table does not correspond to any SIC division. For more: 800-756-2427 or www.census .gov/naics. (See Page 26B for a related chart.) Tom R. Rex is research manager at the Cen-ter for Business Research at the L. William Seidman Research Institute at Arizona State University’s W.P. Carey School of Business. He can be reached at 480-965-5476. Industry classifications have changed The OSHA Web site contains a wealth of information on various health and safety topics. 26B ■ Entrepreneur’s Edge THE BUSINESS JOURNAL phoenix.bizjournals.com NOVEMBER 21, 2003 SIC Division NAICS Sector Differences from SIC to NAICS Agriculture, Forestry and Fishing Agriculture, Forestry, Fishing and Hunting Logging was transferred to this NAICS sector from the SIC manufacturing division. Parts of the SIC Agriculture Services major group were shifted to other NAICS sectors. Mining Mining Very few changes were made. Construction Construction The NAICS definition is nearly the same as in the SIC. Manufacturing Manufacturing The SIC printing and publishing major group was moved to the NAICS information sector. Logging was shifted to the agriculture sector. Numerous other minor additions and deletions were made. Transportation, Communication and Public Utilities (TCPU) Transportation and Warehousing Except for parts of the SIC transportation services major group, which were shifted to other NAICS sectors, the transportation portion of this SIC division closely corresponds to the NAICS sector. Information The portion of the TCPU division relating to communications makes up part of this new NAICS sector. The information sector groups industries that primarily create and disseminate a product subject to copyright. In addition to communications, it consists of the SIC major groups of printing and publishing part of business services and most of motion pictures. Utilities The public utilities portion of TCPU is very similar to the NAICS sector Wholesale Trade Wholesale Trade Few changes were made, but portions of the SIC division were assigned to the NAICS retail trade sector. Retail Trade Retail Trade The SIC eating and drinking places major group was moved to the NAICS accommodation and food-services sector. Finance, Insurance and Real Estate (FIRE) Finance and Insurance The finance and insurance major groups from the SIC are very similar to the NAICS finance and insurance sector. Real Estate and Rental and Leasing Various types of rental activities, such as rental of automobiles and consumer goods, were transferred from the SIC services division to this NAICS sector. Real estate is defined nearly the same in NAICS as in the SIC. Services Professional, Scientific and Technical Services This new NAICS sector comprises establishments in which human capital is the major input. It consists of the SIC major division of legal services, engineering, accounting, research and management services; parts of business services and various other SIC industries. Administrative and Support, and Waste Management and Remediation Services Routine support functions provided to other companies, such as employee-leasing services and janitorial services, make up this new NAICS sector. It was formed from portions of many SIC major groups. The most significant were business services, repair services, transportation services and public utilities. Educational Services This NAICS sector closely corresponds to the SIC educations services major group. Health Care and Social Assistance Nearly all of the SIC health services and social services major groups combine to form this NAICS sector. Arts, Entertainment and Recreation Most of this NAICS sector comes from the SIC major groups of amusement and recreation services, museums, art galleries and gardens. Accommodation and Food Services The SIC major groups of eating and drinking places, and hotels and other lodging places form most of this NAICS sector. Other Services This NAICS sector consists of the combination of most of several SIC major groups, including personal services, automotive services, miscellaneous repair services, membership organization and private households. Public Administration Public Administration Few changes were made. — Management of Companies and Enterprises This new, small NAICS sector includes part of the SIC holding companies major group (part of FIRE). The rest of this sector is made up of auxiliaries, which were spread throughout all SIC divisions. (Auxiliaries performed management and support services for other establishments of the same enterprise.) Source: Center for Business Research, L. William Seidman Research Institute, College of Business, Arizona State University from U.S. Office of Management and Budget Industry classification system at a glance NOVEMBER 21, 2003 THE BUSINESS JOURNAL phoenix.bizjournals.com Entrepreneur’s Edge ■ 27B CHAPTER 3 Finance & Accounting 3• BY SUSAN MERCER HINRICHS Special to The Business Journal Armed with a solid busi-ness plan and seed money to get started, entrepreneurs can begin building a successful busi-ness. But many business owners eventually will face the question of where to turn for continued funding to keep their businesses grow-ing strong. This is where a sound busi-ness plan comes into play. A business plan establishes the framework for a new busi-ness. Part of that plan should include projected balance sheets and income and cash-flow statements. It’s important that those early-stage projections take into account the likely need for further capital infusion for con-tinued business growth. But where can funding be found? At the earliest stage of a startup, entrepreneurs can use personal savings, invest-ments and even revolving lines of credit, such as credit cards, to get their enterprise up and running. Another be-ginning step is to tap “friends, family and fools,” said Terree Wasley, the vice president of entrepreneurial services at the Greater Phoenix Chamber of Commerce. Wasley said seed money for startups often is consid-ered a risky form of business lending. Subsequent financing steps can come in the form of small, unsecured personal loans if a person has an established relationship with a financial institution. However, inter-est rates on such loans can be quite high and costly for the borrower. Additional steps can come from the federal Small Business Administration, Small Busi-ness Development Centers, community banks, community-based programs, venture capitalists or regional banks. The Neighborhood Economic Develop-ment Corp. of Mesa represents one commu-nity- based avenue where small-business owners can seek seed money. NEDCO, a nonprofit organization, provided loans to-taling about $38,000 to four small busi-nesses during its fiscal 2002-2003 year, which ended June 30, said Executive Direc-tor Karen LaFrance. NEDCO funds are loaned at variable rates, depending on the degree of risk associated with a business and usually for terms of four to five years, she said. Without naming loan terms for specific businesses, LaFrance said startups will bor-row from NEDCO at rates above the prevail-ing prime. More established business own-ers may be able to negotiate loan terms for interest-only payments in the early part of the term that ramps up to include principal payments further along in the loan schedule. “We can assess, in talking, whether the busi-ness is ready to borrow funds,” LaFrance said. The conversations also reveal whether, on a long-term basis, NEDCO will be working with “profitable businesses that are creating jobs,” she said. Retired Bank of America banker Harvey Prezant worked with business loans in the course of his 31-year career. He said banks want to see solid fi-nancials before lending to small-business owners. “A bank isn’t a venture-capital organization; it rents money,” Prezant said. “So they want their money back at an interest rate.” He, too, stresses the impor-tance for small-business own-ers to formulate a sound busi-ness plan before approaching prospective lenders. Prezant volunteers with the Service Corps of Retired Execu-tives, or SCORE. Through SCORE, retired business pro-fessionals serve as counselors to help small-business owners develop a business plan and grow their businesses. Small businesses also con-front tax obligations. From sales and use taxes to withholding, unemployment and business-specific licenses, small-business owners face a range of expenses that occur in the course of ongoing business. Corporate income taxes also can present a hurdle. Jay Kaprosy, vice president of public affairs at the Greater Phoenix Cham-ber of Commerce, said Arizona has estab-lished a corporate-property tax rate at 25 percent of assessed valuation. Kaprosy lobbies state lawmakers to en-courage them to set a rate that would be “more equitable” with the 10 percent rate assessed to residential properties. He says the 25 percent commercial assessment rate is the “number one issue impeding growth of businesses that are here.” But entrepreneurs should take heart. Re-sources such as the Arizona Department of Commerce, SCORE, Small Business Devel-opment Centers, chambers of commerce and the like exist to help small-business owners navigate their way through the maze of finance and accounting rules. Armed with solid information and a good accountant, the future is bright for startup ventures. 28B ■ Entrepreneur’s Edge THE BUSINESS JOURNAL phoenix.bizjournals.com NOVEMBER 21, 2003 One key to a successful business startup and expansion is your ability to secure appropriate financing. Raising capital is one of the most basic of all business activities, but, as many new en-trepreneurs quickly discover, it can be a complex and frustrating process. However, if you are informed and have planned effectively, raising capital doesn’t have to be a painful experience. This information summary focuses on ways a business can raise money and ex-plains how to prepare a loan proposal. Finding the money There are several sources to consider when looking for financing. It is important to explore all of your options before making a decision. The primary source of capital for most new businesses comes from personal savings and other forms of personal resources. While credit cards often are used to fi-nance business needs, there may be better options available, even for very small loans. Many entrepreneurs look to private sources such as friends and family when starting out. Often, money is loaned interest free or at a low rate, which can be beneficial. The most common source of funding, banks and credit unions, will provide a loan if you can show a sound business proposal. Venture-capital companies help expanding companies grow in exchange for equity or partial ownership. In Arizona, there are two Small Business Investment Companies li-censed by the SBA: Magnet Capital, 602-222- 4801 or www.magnetcapital.com; and Gray-hawk Venture Partners, 602-956-8700 or www.gvp.us. For a national listing of SBICs, visit www.sba.gov/INV/opersbic.html. Borrowing money It often is said that small-business owners have a difficult time borrowing money. This is not necessarily true. Banks make money by lending money. However, the inexperience of many small-business owners in financial matters often prompts banks to deny loan requests. Requesting a loan when you are not properly prepared sends a signal to your lender. That message is: high risk. To be successful in obtain-ing a loan, you must be pre-pared and organized. You must know exactly how much money you need, why you need it, and how you will pay it back. You must be able to convince your lender that you are a good credit risk. SBA loan maturities Small Business Administration loan pro-grams generally are intended to encourage longer-term small-business financing, but actual loan maturities are based on the abil-ity to repay, the purpose of the loan proceeds and the useful life of the assets financed. However, maximum loan maturities have been established: 25 years for real estate; up to 10 years for equipment; and generally up to seven years for working capital. Short-term loans guaranteed by the SBA also are available to help small businesses meet their short-term and cyclical working-capital needs. Types of loans Terms of loans may vary from lender to lender, but there are two basic types of loans: short-term and long-term. Generally, short-term loans have a matu-rity of up to a year. These include working-capital loans, accounts-receivable loans and lines of credit. Long-term loans have maturities greater than one year but usually fewer than seven years. Real estate and equipment loans may have maturities of up to 25 years. Long-term loans are used for major busi-ness expenses such as purchasing real es-tate and facilities, construction, durable equipment, furniture, vehicles, etc. For more information, call the Small Busi-ness Administration Answer Desk at 1-800- U-ASK-SBA (800-827-5722) or visit www .sba.gov. Consider options in search for capital Whether you are looking for a long-term loan for renovations or equipment, a working capital loan, a revolving line of credit, or a mi-croloan, the U.S. Small Business Adminis-tration has a program to fit your needs. Contact the SBA’s Arizona District Office at 602-745-7200 or www.sba.gov/az to find out how they can help. Most small businesses are eligible for SBA programs, and nearly all banks participate with the SBA. The loan package can be ap-proved as quickly as one to seven days. First you must apply for a business loan at your local bank. If the bank turns you down or if reasonable terms for financing are un-available from the lender, ask the bank to submit your loan application for reconsid-eration using the guarantee of the SBA. If your lender is in partnership with the SBA and the loan is approved subject to an SBA guarantee, a copy of the application and a credit analysis are forwarded by the lender to the nearest SBA office. After SBA approval, the lending institution can choose to close the loan and disburse the funds. For a list of SBA Arizona lenders, visit www.sba.gov/az and select “Financing.” According to Jim Hammersley, director of the Office of Loan Programs at the SBA of-fice in Washington, D.C., “The single most important part of the loan application is the business plan, showing every detail about your business, its markets and all about the products or services it provides.” To be successful in obtaining an SBA loan, you must know exactly how much money you need, why you need it, and how you will pay it back. You must be prepared, orga-nized, informed and ready to convince your lender that you are a good credit risk. Approval of your loan, in part, depends on how well you present yourself, your busi-ness and your financial needs to a lender. When your loan request is reviewed, the lender primarily is concerned about your abil-ity to repay and may require a copy of your business credit report from a reporting agency. The lender will want to know how much you have invested in your business; if you are creditworthy; if you are experienced enough to operate a successful business; if you have prepared a loan proposal and business plan; and if your business has suf-ficient cash flow to make the payments. For more information, see Page 30 of this magazine or visit www.sba.gov/financing. There’s an SBA loan to fit your business NOVEMBER 21, 2003 THE BUSINESS JOURNAL phoenix.bcentral.com Entrepreneur’s Edge ■ 29B Small-business loans are difficult to obtain for startup ventures. Grants to start a business do not exist. Entrepreneurs requiring funding for all new busi |