Building A Business ... Latino Owned Businesses Exceed All Ethnic Groups

June 8, 2009
Written by Dominick Hadley in
Eyes On The Enterprise
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Entrepreneurship is a road well-traveled by many Americans. Approximately 550,000 businesses are launched each month, according to the Kauffman Index of Entrepreneurial Activity.

While those numbers represent a substantial trend of entrepreneurial endeavors, business ownership rates for some minority groups are lower than average. Latino rates exceed all ethnic groups, standing firm at 0.41 percent, compared with 0.29 percent for African-Americans and 0.37 percent for Asians. For those individuals who are contemplating entering the adventure of entrepreneurship, RiseUP has compiled some critical first steps.

Choose a Structure

Businesses come in many forms – sole proprietorships, limited partnerships, limited liability companies and corporations. And with those variations come state and federal licensing requirements. Listed below are brief descriptions of all four structures.

  • Sole Proprietorship — Sole proprietorship is the most common structure for a business. Sole proprietors may conduct business under an individual name or a fictitious trade name. If a sole proprietor operates under a trade or fictitious name, they are usually required to file a “trade name certificate” form in the state where the business is located. Aside from that, no additional state or federal filing is required. Sole proprietorships are exempt from double taxation. All company assets and liabilities are tied directly to the owner’s personal income.
  • Limited Partnership — The limited partnership structure is used when two or more parties wish to invest in a business but only desire limited liability. No state filing is required. Limited partnerships are also exempt from double taxation, but must file an annual information return with the Internal Revenue Service (IRS) to report the income, deductions, gains, losses, etc., of operations. Each partner includes his or her share of the partnership’s income or loss on tax returns.
  • Limited Liability Company (LLC) — Similar to a corporation, owners have limited personal liability for the debts and actions of the LLC. Other features of the LLC are more like a partnership, providing management flexibility and the benefit of pass-through taxation – income and losses transfer to the partners. State filing is required.
  • C and S Corporations — Corporations are more complex and are subject to more state regulations. Corporations are required to file Articles of Incorporation with the Secretary of State. C corporations are not exempt from double taxation. These entities pay a federal corporate income tax on any profit, and if the company also declares a dividend, the stockholders must report the dividend as personal income and pay more taxes. Subchapter S corporations, however, are exempt to from double taxation.

While they differ in taxation, both structures provide limited control. Corporations are required to form a board of directors (individuals who are responsible for making major business decisions and appointing officers), which includes a president, vice president, secretary and treasurer.

Fail to Plan – Plan to Fail

“Most of the time people don’t have business plans,” says Barbara Caldwell, public information officer for the Small Business Administration’s Kansas City branch.

Two-thirds of new firms survive their first two years of business and 44 percent survive at least four, according to government research. Although it’s not clear whether improper planning leads to most downfalls, Caldwell sees it as a common mistake among many she encounters.

Business plans provide a detailed layout of all aspects of a potential enterprise, including:

  • Executive Summary — The executive summary should contain a mission statement (a paragraph outlining motives and intentions for starting a business), plus a brief business overview, a description of what will be sold, what market it will serve, legal structure, and a history complete with primary strengths.
  • Market Analysis — The market analysis describes the industry of which a business will be a part, along with demographics on size, location, history, competitiveness and profitability of that particular sector. More specifically, it conveys the current trends in opportunities and potential threats, including new competitors, substitute products made by other companies, industry rivalry, the level of competition among companies wanting to achieve a competitive advantage, and government regulation. In addition, the analysis should include a targeted customer profile.
  • Competitor Assessment — While some assessment information is presented in the market analysis, competitor assessments profile existing businesses within a target market. In this section, all competitors are defined. Profiles address their market share, relationship with customers, advertising plans, price, distribution, product and/or service features, financial strength and length of time in business. The competitor assessment should also outline services that are offered to customers.
  • Marketing Plan — Marketing plans address four essential areas: product description, price strategy, distribution center and promotional efforts. For product description, the plan should include specific details. If it’s a tangible product, pictures, drawings or technical images can be used. Descriptions include size, shape, color, cost, design, quality, technical capabilities and manufacturing procedures. If the product is a service, the plan should explain what the service is, how it will be performed, what makes it different, and all necessary equipment. When presenting pricing strategy, the perceived value of the product or service, cost of doing business, marketing goals, and anticipated competitive actions are described in detail. Similar detail is necessary for distribution information. The “hows” and “wheres” of distribution (including cost, efficiency and customer service) and promotion should be outlined.
  • Operating Plan — The operating plan specifically outlines a company’s ownership and management structure. For a business organized as a corporation, the function of the board of directors and principle owners are described. Also included are specifics regarding facilities and equipment, legal issues, staffing and production methods.
  • Financial Plan — One of the most essential business plan elements, the financial plan estimates profit potential. Projections for two to four years into the future should be presented. Those projections should include a forecasted income (monthly for the first two years, then quarterly thereafter), forecasted cash flows by month, forecasted balance sheets (the summary of a company’s assets and liabilities), and a break-even analysis.

Identify Outside Assistance

While individual competition is the lifeblood of a business, entrepreneurs should identify outside resources for assistance.

Caldwell says most clients she encounters are unaware of the programs available to sustain their businesses. The SBA 8(a) program designates federal contracts for businesses owned by socially and economically disadvantaged individuals – mainly minority groups.

“It comes down to having knowledge,” Caldwell says. “[Entrepreneurs should] listen to radio and television and attend seminars on how to receive grant money for their businesses. They must learn about what is out there to help them instead of listening to water cooler talk.”

Eyes On The Enterprise