BBB » The Better Business Bureau of New York

Introduction

You're the boss.You want your business to prosper. And naturally, you care about your business reputation. How do you make success happen? Start by cultivating your business relationships.Your company has important relationships with customers, employees, lenders, government agencies, and vendors. The more you know about dealing with each of these groups, the better. Don't wait until problems develop to ask questions. Find out about good business practices now:

Talk with the experts
Get ready to get financing
Sell the smart way
Respect your customers
Keep it legal
Know how to avoid scams

close x

Talk with the Experts

Get Ready to Get Financing

Lower Your Risk Level

When small businesses fail, it is often because they don't have enough money to operate or grow. Plan ahead. Don't wait until you are desperate for money to do your homework. Make sure your personal life, your credit history, your business plan, and your business operations are in order long before you seek financing. Build the relationships you will need in order to seek and obtain financing. Get to know the loan officer at the bank where you do business. Look for other sources of financing that match needs you can anticipate, and get acquainted with them well in advance.

Your record keeping for inventory and accounting purposes should be regular, orderly, and consistent with the standards in your industry. Presenting accurate records will help you show a strong picture of your business when you are ready to approach potential lenders and investors.

Lenders and investors are eager to work with responsible business owners. At the same time, they want to minimize their financial risk.They will require that you present detailed and often very personal information about you and your partners, as well as your business. As they review your information, they will look for evidence that you are trustworthy, that your business is well managed, and that your company generates enough revenue to pay back a loan or create a good return for an investor's money.

TIP: To lower the cost of borrowing, find out how to lower the credit risk level for your business.

Ideally, your application will show that your business is a low credit risk candidate for a loan or investment. If you have a business with high credit risk, there is still a very good chance that you may get financing, but be aware that it will cost you more (i.e. higher interest cost, etc.). The cost of financing is related to the lending risk level.

When you develop the case for funding your business, make sure your application is truthful, accurate, and complete. A significant omission or a misleading detail could make it difficult for you to get financing.Your resume should demonstrate that you have expertise in the kind of business for which you are seeking funding.

Your Personal Commitment and Background

If you are asking an investor or bank to risk money on your business, you will need to show that you (and your partners, if any) have a deep commitment to your business.The business owner is typically expected to show a personal investment and, along with partners, must provide at least 25% of the total amount needed for a particular loan purpose.

Many larger loans require collateral, such as property or securities that are pledged as financial backing for the loan. For small businesses, especially new ones, the collateral may need to be personal assets of some kind, such as a home, other valuable property or a co-signature on the loan. It is important that you and your family members understand both the risks and benefits of offering this kind of pledge of family assets.

Running a small business can also be exhausting, requiring long hours, and resulting in a lower standard of living for the owner during the start-up and early growth years of the business. Lack of family support could seriously hurt a start-up business.Talk with your family members about the effort necessary to make your business a success and be sure that you can count on them to help you along the way.

Order copies of your personal credit reports in advance from the major credit-reporting firms and examine them carefully:

Experian
Trans Union
Equifax

If the credit reports are not accurate, contact the credit-reporting firms in writing to request corrections. Accurate credit reports will inspire confidence from lenders and investors who review them. If your credit score is not considered high, consult with the credit reporting agency or a business adviser to identify ways to improve your credit score.

Types of Funding and Providers

Match the funding purpose and the nature of your business to the type of financing needed. Approach providers that specialize in that sort of financing.

You may need financing for short- or long-term purposes. Most short-term loans mature in a year or less. Short-terms loans include lines of credit (the option to borrow modest sums on short notice for a short time), which give you access to working capital (money that helps you run your business when cash flow is low).

The value of the assets purchased and the company's ability to repay may affect the loan repayment period. Long-term loans are generally repaid between one to seven years, and are usually given for major business purposes, such as the purchase of equipment or inventory.

QUICK QUIZ:

Answer these questions when seeking financing.

Are you seeking money for short-term or long-term purposes?
Exactly how much will you need-a lot of money or just a modest sum?
Can you afford to make loan payments?
What kind of financing is the least expensive one for your business purpose?
Are you willing to sell part of your business - and lose some control over it?

Even if you have enough money of your own to start your business (personal assets), eventually you will probably need to borrow money (debt financing) or sell an equity interest in your business (equity financing) to make your company grow. These different types of financing may have tax advantages and disadvantages. You may wish to consult a professional tax adviser, such as an accountant, about your options.

Your Personal Assets

Your personal assets include your own cash, credit and other valuable property such as real estate (your home) and securities.You should always plan to invest in your own business using your own personal assets. Be careful not to rely too heavily on financing your business with expensive forms of debt financing, such as credit cards.This is risky and may affect you negatively when the time comes to seek other financing.

Debt Financing (Loans)

Debt financing through traditional loans must be repaid.

Friends and relatives - The people closest to you know and trust you, but could sometimes become difficult business partners. If you seek financial help from relatives and friends, make sure your business relationship is spelled out in writing.

TIP: Put all your business agreements in writing, even when doing business with friends and relatives.

Commercial and savings banks - Banks are very willing to provide financing if you present a good case for your business.The Small Business Administration (SBA) has made it easier for banks to provide loans to businesses by providing government guarantees for many kinds of bank loans that might not otherwise qualify, and by simplifying application procedures.

Credit unions - Credit unions may offer good terms if you are eligible. Often credit unions are related to a company or a labor group.

Insurance companies - Some insurance companies may offer loans. Ask your insurance broker about possibilities.

Consumer finance companies - These companies make small personal loans, often to individuals with poor credit, and the cost of the loan is generally higher. If the loan is not repaid, the collateral providing the financial backing or the item purchased with the loan funds may be seized. Check the company's reliability with the Better Business Bureau.

Commercial finance companies - These companies operate much like consumer finance lenders, but make loans for business purposes such as purchases of inventory and equipment. Again, you'll pay more for these loans, which are often made to higher risk businesses, and your purchase typically becomes collateral for the loan. Review terms carefully.

Non-profit "micro-lenders" - Your community may have non-profit organizations that assist business owners with needed funding and business counseling.These organizations may provide loans up to $35,000, and offer special services to start-up and developing businesses. Frequently these programs are targeted to women, minorities and immigrants whose businesses cannot obtain financing from other sources. Ask your local SCORE office, SBDC, or BBB to identify organizations in your area that may have such services.

Business owner financing of a business purchase - If you purchase an existing business, the current owner may finance part of the purchase price for you.

Franchise financing - Franchise businesses come with established brand names and a pre-defined business plan and style of operation that the new owner is expected to follow. For some types of franchises, the start-up funds may be available directly from the firm offering the franchise business. Check the terms and profit potential.

Economic Development Commission - This is a division of the U.S. Department of Commerce. It facilitates loans to businesses in economically deprived regions, with the goal of creating new jobs. Contact the Department of Commerce for details about the special requirements for such loans.

Empowerment Zones and Enterprise Communities (EZ or EC) - EZ and EC help businesses in target geographic areas to grow their businesses through business and tax incentives provided through federal and state legislation.

Debt Financing Alternatives to Traditional Loans

Debt financing may also include ways of manipulating credit or debt in order to manage cash flow.

TIP: Alternatives to loans might make good business sense - or they might cost more. Check terms carefully.

Vendor credit - Trade credit or vendor credit is used when a business makes a major purchase, to be paid over time on credit from a vendor. Comparison-shop to see whether you might do better by paying for the purchase with some other form of financing. Discuss terms with your vendor, and don't be afraid to negotiate for a better deal.

Customer financing - Sometimes a major customer or potential customer for your business may help you by providing special financial assistance. In this case, review the terms offered and make sure the requirements would not be too limiting for your business in the long run.

Factor companies - The "factor" purchases your accounts receivable (money owed to you) at a discount for cash. Risks associated with collection may or may not be transferred to the factor. This provides your business with cash flow sooner. If you work with a factor, be sure the company is a reputable one that will not destroy your customer relationships through problem collection tactics. Ask for references, check them, and negotiate terms. Be sure you get the best deal possible, taking into consideration issues such as the amounts payable and the credit history of your accounts.

Leasing companies - By leasing equipment, you avoid having to pay a large sum all at once for a purchase, and also avoid owning outdated equipment. Review the leasing agreement carefully and check the tax effect, to make sure the deal is not too expensive compared to other types of financing that could give you ownership of the equipment. Equity Financing

Types of equity financing involve selling all or part of your business to others. This means you will lose some or potentially all of your control over the business. Are you ready to share decision-making power? If not, this option might not work for you. For more information about contacting sources of equity financing, talk with a professional business adviser from a group such as SCORE.

TIP: If you seek equity financing, be prepared to share decision-making control over your business.

Venture capital firms, closed-end investment companies - Such entities provide money to finance growth, and in return, get to own part of your business, which generally means that you keep control of your company. Closed-end investment companies usually specialize in proven businesses, are registered with the federal government, and generally provide larger sums.

Private investment partnerships - In private investment partnerships, one or more individuals supply capital and become passive partners in your business.This means that you as general partner run the business and provide returns to your investor partners. Review the terms of any such deal carefully with an expert before proceeding.

Employee stock ownership plans (ESOP) - Your employees -if you have any-may be willing to work for smaller pay and benefits in return for "sweat equity," meaning part ownership of your firm. Consult with your accountant or attorney on ESOP.

Corporate investment - Major corporations may invest in your business, if you can show good prospects for your company's future growth.This may involve a complete or partial purchase of your company, a joint venture (where several companies share ownership), or a licensing agreement (meaning specific rights are granted to the corporation providing funds).Your new owner or corporate partner may or may not want you to continue running the business. Be sure the nature of your relationship is clear from the beginning. Develop a Business Plan and a Financing Proposal

A written business plan is an important management tool.Your plan should cover these types of matters:

Describe you, your partners, your staff, and your business operations in detail
Correctly show the existing assets, debts, and seasonal cash flow of your business
Evaluate your customer base and the competition you face in the marketplace
Explain how you overcome the competition
Review any past business financial performance, including a three-year history of sales and costs
List the measurable business goals you have for each part of your business
Project how your business will perform financially in the next three years

TIP: Get an expert to help you prepare your business plan.

It is a good idea to have an accountant, lawyer, or other professional business adviser help you prepare your business plan and financing proposal.You should be able to demonstrate exactly what purpose the new financing will serve and show that your business will generate enough cash flow to repay a loan or provide a good return on an investor's money.

Once you have written a model business plan and financing proposal, identify the best potential sources of funding for your purpose in your community or industry. Contact these sources to ask what special requirements they might have for reviewing requests for funding; then tailor your financial proposal to meet the needs of each target.

Be patient and persistent. Seeking financing takes time and determination. Perfectly good requests for funding may be rejected by many potential providers before you find the right match for your business and your needs. Don't worry if you don't get financing right away. Financing is available through legitimate sources. If you seek out good business advice, write a solid business plan, and keep on searching for financing from reputable sources, chances are very good you will find the help you need.

close x

Sell the Smart way

"Up to 80% off!""We guarantee the lowest prices on all brand name computers!" You probably see these kinds of claims all the time, in shop windows, in advertisements, and on Web sites. Informed business people know that such claims could be considered deceptive advertising.

If you ask a few questions, you'll realize why. For example, how many items in the store are actually available at 80% off-how many are discounted at all- and what is the lowest rate of discount? If only a few items are sold at 80% off, the "up to 80% off " claim could be deceptive. Today, when competition takes place globally over the Internet, how could anybody track prices from moment to moment in order to prove that a particular company has "lowest" prices?

Make sure all your communications and selling techniques are clearly stated and provable. This will help you minimize potential problems with customers and regulatory agencies, and make it easier to get repeat business.

TIP: If you can't prove it, don't say it in any kind of business communication.

These basic principles can help you steer clear of trouble:

Be truthful. A truthful representation is not just partly or literally true; it is entirely true and not misleading. It is truthful not only in its words, but also visually. The image or design must not create a misleading impression about what is being claimed.
Prove it. If you can't prove that something is true, don't say it in a store sign, an advertisement, a sales presentation, a Web site, or any other form of communication. Opinions usually fall into the category of sales puffery; but statements of supposed fact must be proven with evidence. To be safe- avoid exaggerated claims.
Tell all. Disclose all the terms and conditions of sale. This would include all specifics about how to identify, locate and contact your business; complete details of policies about returns, delivery, extra shipping charges, rebates, refunds, warranties or guarantees; and all details about charitable donations related to a sale. All information important to a customer's decision to buy your product or service should be fully revealed before purchase.
Honor your offers. Be careful what you say when you make an offer to the public. For example, if you mistakenly offer an item at a wrong price, the law may require that you honor the offer or publish a correction. A business should never knowingly offer a product or service that it cannot provide, or offer a low-cost item as bait when intending to provide another, costlier item instead.Your business is legally obligated to keep track of inventory and notify customers promptly if an order cannot be filled.
Protect your customers. In the course of business, you may collect very private information from your customers. It is important to disclose how the information will be used, get customer permission, and say clearly how you will safeguard the privacy and security of this data. In many cases the law requires this. Communications directed to children are especially sensitive and must meet extra legal requirements.
Comply with the law. Find out about federal, state and local laws that regulate your business.

For additional information about guidelines and laws regulating advertising, direct marketing, and privacy, you can contact the Better Business Bureau, the Federal Trade Commission (FTC), your state or city Department of Consumer Affairs, and the office of your state's Attorney General.

close x

Respect Your Customers

Trust is the essential element for business success.When customers trust you, they will keep doing business with you, and they will send other customers to you.

If you are the only person handling your own business, you have complete control over the relationship with the consumer. When you hire others, you will need to train your employees to respond to customers in the way that you want.

Unhappy customers may file a formal complaint with the Better Business Bureau (BBB).The BBB would then work with your company to resolve the complaint. More often, unhappy customers will tell other people how badly your business treated them. Over time, your company's reputation could suffer. Don't let this happen.You can prevent most customer problems.

TIP: Develop a formal complaint-handling procedure and train your employees to use it.

It's a good idea to develop a consistent complaint-handling program, including a written policy. Be sure your plan includes responses that comply with the law. Consumers complain to the BBB about these kinds of problems:

Bad treatment. Customers complain when they feel they have been mistreated.This is the easiest problem to avoid. Make your customers feel respected.
Poor or slow complaint handling. Respond promptly. Acknowledge receiving the complaint, and say when you might be able to resolve the problem.
Failure to deliver a promised item of merchandise or a service. If there will be a delay, contact the customer to explain when the product or service might be available. The law may require that you offer the option to cancel or accept a substitute. It is certainly good business practice to do so.
Product or service quality is poor or damaged. When you sell something, it is implied that the item is good enough to sell ("implied warranty"). Because of this, if you supply a defective item or service, you are required to offer to substitute a good item or service, provide a repair, or supply some other solution.
Refusal to provide a refund. Make your refund policy available at the point of purchase before the sale is made. Abide by the terms of your policy. Customer can't locate help. Make it easy for the customer. Print your name, address, and customer hotline number on your receipts, contracts, and Web site.
Misrepresentation. Avoid this problem by teaching employees how to communicate your policies honestly, clearly and consistently.
Failure to honor prices, warranties, or deceptive advertising. Deliberately misleading customers is illegal and bad for business.
Misuse of private customer information. Create a privacy and data security policy that complies with applicable laws, make the policy available to customers in writing, and train employees to safeguard private customer information.

The key to good customer service is an honest and friendly attitude towards the customer. Pay attention to workplace stresses (conditions such as temperature, light, noise, access to adequate information, etc.) that affect your employees; do your best to make it easier for them to serve your customers politely.

TIP: Show that you're willing to help solve the customer's problem, even if you don't agree with what the customer says.

These practices can help you and your employees have a positive attitude with benefits for your bottom line:

Listen to the customer. If you are talking, you aren't listening. Listen actively, to understand the main points and show that you hear what is being said.
Don't run away from anger, and don't respond with anger. Say you are sorry that something made the customer unhappy, and offer to help solve the problem.
Make sure you understand the customer's complaint. Summarize what you think you heard and ask the customer if that is what he or she means.
Ask the customer to tell you exactly what kind of solution he or she wants. Be friendly and sympathetic.
Offer some kind of solution. If you can't offer everything the customer wants, try to provide a solution that will make the customer feel better about your business.
Make the customer feel important. Always thank the customer for doing business with you.

close x

Keep It Legal

Legal Issues That Affect Your Business

Federal, state, county, or city laws can affect your business. Professional business advisers and attorneys are the best sources for this type of information:

Legal forms of business ownership, such as partnerships and corporations, and their advantages and disadvantages
Required business licenses, professional licenses, and permits
Tax laws
Laws affecting your relationship with your employees
Laws regulating consumer matters such as advertising, marketing, refund rights, warranties, delivery of goods or services, sales, contract cancellations, receipts, repairs, debt collection practices, required notices, privacy and security of sensitive data, and protection of children

Finding Professionals

When choosing professionals to help you, it is a good idea to interview several candidates and ask questions about their qualifications, fees, and references before deciding to work with one.

Lawyers

Most people check the yellow pages when seeking a lawyer, or ask a relative or friend to recommend someone. This may not be the best way to locate a skilled lawyer.

Look for someone who has experience advising businesses of a similar size, ideally in your industry. Many bar associations have excellent referral services that can help you find a qualified lawyer, usually for a small fee.

Accountants

It's important to find a good accountant for your business. Even if you maintain all your business records yourself, at some point, you will probably need to consult a professional about tax laws, loan applications, or other matters that affect your business finances.

Look for a Certified Public Accountant (CPA).You can get referrals from business friends.You can also locate such individuals through national or local CPA associations, which you can find through the Internet or phone book.

Licensing

Smart business owners understand that they have to obtain a license to operate when the law requires it. Since you are putting a lot of money and effort into your business, you don't want to endanger it by failing to get something as simple as a license.

How do you learn about licensing? Consult a business adviser or the local association for your industry. You are likely to find information through the following government agencies:

City: Department of Consumer Affairs, Mayor's Office, Economic Development or Business Development office
County: County Clerk or County Executive
State: Department of State, usually located in your state's capital
Federal: Federal Trade Commission (FTC), and other federal agencies

close x

Know How to Avoid Scams

You worked hard to get the money you need to start and build up your business. Be on your guard against con artists who may try to take advantage of you.

Many scams fall into common patterns.The most common scam offers an overly large profit for a business requiring little or no effort to run, or for a supposedly "risk-free" investment. If someone approaches you with these types of schemes, be very suspicious.

TIP: Be cautious! Home business or vending schemes that appear to offer big money for simple jobs may be scams.

Scams often target people who are ready to set up new businesses, as well as established business owners.

New Businesses

Work at home schemes. Beware of programs that seem to offer high pay for tasks you can do at home, that don't require great skill. Quite often these programs are fraudulent. Common programs involve envelope stuffing, medical billing, discount or coupon programs, distributorships, sales, or the purchase of special equipment or software to start such businesses. Many people lose large sums of money through work at home scams.

Multilevel marketing or pyramid schemes. Programs of this nature typically involve sales of products or services, or payment of returns on investments, and may also offer high rewards to participants for recruiting other people into the program. Usually early recruits are paid out of entry fees collected from new participants. Eventually the program collapses, and most of the participants lose their investments. In many states and at the federal level, this type of program is illegal. It is almost always dangerous; avoid it.

Business opportunities and get rich quick seminars. If you are considering an investment in a business, or in money-making items such as vending machines, investigate thoroughly and require proof of claims. Not all business opportunities are legitimate. Sometimes promoters of risky or fraudulent business opportunities draw in prospects through seminars that promise to teach anyone how to make huge sums. Be wary if you attend this kind of event.

Existing Businesses

Invoice scams for office supplies, yellow pages ads,Web sites, or advertising. It is very common for con artists to send invoices for goods or services that you did not purchase, hoping that you will pay without questioning the bill.

False "free" offers. Be skeptical if a company offers you something for "free" on a trial basis, especially if this requires you to give out financial information about your business, or you are asked to download a strange program onto your computer through the Internet.You may never receive the "free" item, and instead might find a fraudulent charge on your credit card, bank account, phone bill or Internet service bill.

Telephone and voice mail misuse. Criminals may try to get access to your telephone system through voice mail boxes or other points of entry, which they reprogram so that they can fraudulently charge huge long-distance bills to your company.

Identity theft. Identity theft happens when someone misrepresents his or her financial identity in order to steal money or things of value. Identity thieves may use the following tactics, as well as other schemes, to commit serious financial crimes:

Approach your business to make a purchase, using a false identity
Purchase goods or services by pretending to represent your business
Attempt to get private identity information about an employee from your company
Steal private financial data from you, either from inside your company, or through the Internet

However it happens, identity theft can expose your businessand your customers to potential loss.

TIP: If the deal sounds too good to be true, do not spend money on it.

Warning Signs

Avoid any program that promises an unrealistically big return, especially if it requires a large up front payment.

If someone pushes you to make a quick decision about a business opportunity, be very cautious. Take your time, get all the facts, and don't give in to pressure.

Basic Scam Avoidance Practices

Get all promises and claims in writing. Ask for proof of claims.
Require references and check them. Be aware that people may falsely give good references on a company. Try to get many references, not just one or two. When checking references, ask detailed questions about business procedures and performance that only a person with real experience in that industry could answer.
Before signing any document, read it carefully. Sometimes items such as checks and purchase orders contain legal agreements that you might not realize you are authorizing. Never sign a contract that contains blank spaces.
Be sure you understand a written business agreement completely, and if possible, get a lawyer's help. If you can't explain the agreement to someone else, don't sign it. Keep asking questions until you get answers that satisfy you.
Screen all of your employees before you hire them.
Set up a tightly controlled system for authorizing purchase orders and payments.
Keep control of your mail; it is full of valuable items, such as checks and private financial information.
Change pass-codes for telephone, voice mail, and other billable communications systems frequently. Use complex passwords at least six characters long or longer. Passwords should never consist of character combinations that can be guessed easily, such as phone numbers, birthdays, or names.
Review all financial statements and bills, to make sure there are no unauthorized amounts on your accounts. Keep these sensitive documents in a secure place. Destroy or shred any such items that you do not want to store.

Dos and Don'ts

Do not pay for goods or services that you did not order. If fraudulent charges appear on bank statements, credit card bills, or other bills, send a letter disputing the false charges right away. Notify the BBB and appropriate law enforcement agencies, such as your state's Attorney General and the FTC, about the problem.
Do not respond to unsolicited email business offers from strangers, especially messages from persons in foreign countries that request the use of your bank account (the classic "Nigerian letter" scam, which may also seem to come from other troubled countries).
Do not confirm or provide private financial information by email. Some email frauds look like a message from your own Internet service provider, bank, credit card company, or other vendor, requesting email confirmation of financial data. If you are concerned, print out the email and send it with a written inquiry to your vendor's fraud prevention department.
Do protect your company's financial data and any data about your customers that could be used for identity fraud purposes.You may wish to hire privacy and security consultants to review your company's operations and advise you.
Do investigate an unfamiliar business before you buy. Find out its street address, phone number, whether it is licensed if required, names of key contacts, and its business reputation. Check on it with the Attorney General of your state, your local Department of Consumer Affairs, or the Better Business Bureau.

TIP: When in doubt, check it out with the BBB, the FTC, your state's Attorney General, or your local Department of Consumer Affairs.

close x

Resources

Debt Financing (Loans)

Lawyers

Small Business Development Centers

State Development Agencies

Better Business Bureau (BBB)

More Advertising and Marketing Guidelines

Lawyers and Accountants

Data Security

Other NY State Licensing Agencies :

Information About Non-Profit Groups