Small Business 101

Financial Planning

If you are thinking about starting your own business, you probably have tons of questions about where to start. Get advice from Small Business 101 to learn more about the basics of entrepreneurship.

Scott Parsons is the director of the financial services division for the Virginia Department of Business Assistance. He also serves as the executive director of the Virginia Small Business Financing Authority.

Scott has over 18 years of commercial lending experience. He has worked with Bank of America and its Virginia predecessors working as a credit analyst, a commercial account manager, and later as a manager of a central credit underwriting center in the commercial card division. Most of his experience has been in assisting small businesses with their financial needs.

A native of Norfolk, Virginia, he graduated from the University of Richmond.

Scott was online to talk about financial planning

The transcript follows below.

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Frederick, Md.: I am looking to start a small business but I have a low FICO score(650). Can I still get loans from banks to help out?

Scott Parsons: I hate to use this cliche, but "that depends". While a FICO score is a reflection of one's repayment history, it is not always the sole criteria used by a bank in its loan decision process. A low FICO score doesn't help though. Other factors like a good co-signer, collateral, and a business plan that shows an ability to repay might be factors in helping to overcome the low score.

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St. Louis, Mo.: For those of us without a business background, the financial planning aspects of starting a small business can be intimidating. Are there any reference tools you can recommend to serve as a cheat sheet for basic financial planning, including what records a small business is required to keep and how to prepare for tax filing?

Scott Parsons: The web has numerous sites to assist individuals and business owners in these matters. I suggest you first contact your state's office of economic development or Department of Commerce. They should be able to refer you to resources within your state. The SBA website, www.sba.gov has valuable information that you can download and links to other resources such as the network of Small Business Development Centers that provide training to individuals who want to start a business.

Good luck!

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Accokeek, Md.: I'm interested in starting a multimedia production business that I will operate from my house. I have previous knowledge and training in the industry, in addition I'm continuing my education to be proficient in the latest technology available. How should I formulate a business plan to attract an investor that would be willing to invest the capital to purchase the equipment necessary to operate the business?

Scott Parsons: I recommend that you contact your Small Business Development Center network. They can provide training to you for writing a business plan and will also have information pertaining to what Angel and VC networks look for in an investment. The SBA can direct you to the Development Center network if you are unsure of how to find them, or contact your state's office of economic development. The web has numerous sites to assist you as well. Be prepared to invest your own money and to share in the ownership of your company. Good hunting and good luck!

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Baltimore, Md. : I have a plan for a technology company, but no product as yet. Producing one would require considerable investment. At what point is it appropriate to approach "professional" investors, such as investment banks or VC firms? And can I do this locally, or do I have to go to New York or Silicon Valley?

Scott Parsons: Don't even think about being ready to approach anyone without a product. What would you tell them? You have a PLAN? Please!

Do your homework. Start reading books and business journals about technology companies and investigate the successes and failures within the industry. Research the market for the technology products that might come close to being in your PLAN. Is there a niche for you? Talk to local business owners, the Chamber of Commerce and your state's office of economic development, universities, technology centers, etc. You have much to do before you can begin to think of starting a company.

You'll have fun! Go for it!

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Washington, D.C. : Scott, I have an idea for a home-based business but don't have much savings and need some seed money to get started. I cannot ask family for loans or gifts. What should I do? Should I go to the bank? Or just try low-interest credit cards?

Scott Parsons: I wish I had an easy answer for you, but I don't.

Asking a bank for a loan without having any cash equity to put into the business is not likely to bring you positive results. Many entrepreneurs begin their businesses by "boot strapping", meaning they find seed capital through family and friends and they borrow on credit cards. While credit card debt may be easy to obtain, be careful. It is still a loan that requires repayment and often times those "low interest rates" are temporary.

I would recommend using all of your contacts and network like crazy to find potential investors. Talk to your Small Business Development Center and Chamber of Commerce to find out networking opportunities for entrepreneurs and angel investors to meet.

Good luck!

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Alexandria., Va. : I'm interested in trying to franchise a restaurant -- a national chain. But their franchise fee is massive (several hundred thousand dollars) and that doesn't cover other costs. Can I get state help for a venture such as this? What would I need to show to impress investors or state agencies that I'm qualified to run this business (I have experience in foodservice management)?

Scott Parsons: You will need to have plenty of cash equity of your own in order to purchase a franchise. Such ventures are risky, provide little-to-no collateral for a lender and repayment ability is based not on historical proven numbers, but rather the entrepreneur's best guess as to what revenues and expenses the enterprise might have. Expect to have at least 30% cash equity and outside collateral to cover any funds that are borrowed. Not the answer you want to hear, but reality.

See if you can find other investors such as yourself so that you can pool your money and talents. You'll have a better chance.

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Bluemont, Va. : Do you recommend any financial software for people who are considering starting a company on their own (and doing the books themselves)?

Scott Parsons: No recommendations for financial software, but there are plenty of good ones outtheere. You can go to our website www.dba.virginia.gov and clickj on "Business Lauchpad" for information and links to assist you in starting a business. Also, check with your nearest business school for software information or the web.

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Sterling, Va.: What is the best way to put a business plan in front of a venture capitalist?

Scott Parsons: VC's vary. Some are very focused on a particular segment within an industry, others invest through groups, and some will not read a plan that has not been prescreened.

I would suggest that you contact your Chamber of Commerce or local office of economic development for some guidance to local VC networks. If your plan is technology related, contact the Northern Virginia Technology Council or the Center for Innovative Technology in Herndon, VA.

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Hagerstown, Md.: I want to start a E-bay Auction store. Where can I get help with the financing ($50,000)?

Scott Parsons: See reply to Washington, DC

and start saving your money!

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Sunny Isles Beach, Fla.:

I'm trying to find places to put an ad looking for investment money. While the local newspapers carry one or two, and there are many services that SAY they will help find you funds, I cannot find a decent classified paper to place the ad in. Can you help me?

Scott Parsons: You will not find investment money by putting an add in a newspaper. See above replies to Accokeek, MD and Baltimore, MD for suggestions.

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Washington, D.C.: What is the number one source of financing for small companies?

I want to thank you for taking time to answer our questions.

Scott Parsons: Owner's equity followed by friends and family.

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Oxford, Miss. : We've all seen the late-night TV ads for books and things you can buy to get government grants and loans. Is that stuff legit? Is it worth pursuing?

Scott Parsons: There are government grants available, but the grants are generally very specific to a particular need. Grants to just start a business are not available within any federal or Virginia agencies that we are aware of. Contact your local office of economic development to get their insight on possible grants in Mississippi.

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Mt. Clemens, Mich.: I'm a recent college graduate and I want to know why universities do not require a personal finance class for all students. Shouldn't all graduates be required to learn how to do basic things like avoid accumulating credit card debt or how to invest their money once they start making it? I'm ticked because my alma mater didn't even offer an optional one for students who weren't finance majors.

Scott Parsons: Actually I think such training should start in Middle School. Let's start a MOVEMENT!

March on!

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San Luis Obispo, Calif.: Scott,

Thanks for taking questions.

Generally speaking, can you advise for or against asking family members for loans?

If you think it's an OK idea, what might you suggest as a fair repayment plan and/or interest rate?

Is it worth bringing in a lawyer in such cases?

Scott Parsons: It's done quite often. I would suggest a market interest rate - just call a local bank to see what they would charge for a similar loan. Attorneys are alway advised in such situations.

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Washington, D.C. : Scott,

I'd like to start a business locally with some associates. I understand that there are numerous sources of potential funding/assistance for minority owned and run businesses -- where should we look? Also, would they provide full start-up money, or would we need to show that we already had other sources of funding?

Scott Parsons: I don't know what might be offered in Washington, D.C.; but in Virginia there are some resources to help. It really depends however on the type of financing you need. If you need equity, local venture capitalists and angel investors would be your best bet. Our agency, the Department of Business Assistance offers some debt financing that works in conjunction with bank financing. We have to have a bank with which to partner however.

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Scott Parsons: Thank you for your questions. Good luck to all of you. If you operate a business in Virginia or are interested in relocating your business to Virginia, please feel free to contact our Virginia Business Information Center here at the Department of Business Assistance. Our professionals on staff are very knowledgeable and can help you with just about any business related question. They are a great resource. They can be reached toll free at 1-866-248-8814 or at VBIC@DBA.state.va.us.

Thanks again!

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Editor's Note: Washingtonpost.com moderators retain editorial control over Live Online discussions and choose the most relevant questions for guests and hosts; guests and hosts can decline to answer questions.