Small Business & Entrepreneurship

Question 1

504 vs. 7(a) loan

Why would you recommend one over the other? What does each do?

Small Biz 142-146

And SBA chart

Answer 1

7(a) – Small businesses go directly to participating banks to apply for a 7(a) loan or for
any of the subsidiary programs under 7(a). Typically, one major advantage of the 7(a) loan program over a straightforward commercial loan is the extended
repayment term. Working capital loans can have maturities of up to ten years, while 25 years are available to finance fixed assets such as the purchase of real estate.

7(a) Continued - Uses -
Term Loan. Expansion/ renovation; new construction, purchase land or buildings; purchase equipment, fixtures, lease-hold improvements;
WORKING CAPITAL; refinance debt for compelling reasons; seasonal line of credit, inventory or starting a business

504 Loans through a Certified Development Company (CDC) –

The SBA 504 loan program, administered by SBA Certified Development
Companies (504 CDCs), provides long-term, fixed rate capital to small
businesses to acquire real estate, machinery and equipment for business
expansion or facility modernization. The loans cannot be used for working
capital purposes or to refinance existing debt, except to replace funds spent on
the project in anticipation of the loan.
The 504 program requires that funds be provided by three sources:
 The business needs a conventional lender to provide a first-mortgage type loan for approximately 50% of the funds at a normal lending rate.
 The borrower provides a minimum of 10% of the funds.
 A Certified Development Company (CDC) provides the remainder through debenture bond sales. The CDC sells debentures in the private market, and they’re guaranteed by the SBA. These debentures pay an
annual interest rate that is below market rate.

504 is a is a long-term financing tool for community economic development. The 504 Program provides small businesses requiring “brick and mortar”
financing with long-term, fixed-rate financing to acquire major fixed assets for expansion or modernization.

Uses - Long-term, fixed-asset loans; Lender (nonguaranteed)financing secured by first lien on project assets. CDC loan provided from SBA 100% guaranteed debenture sold to investors at fixed rate
secured by 2nd lien.

Biggest two differences - 7(a) can be used for working capital, 504 cannot. 7(a) loans are managed by banks. 504s are run by CDCs

Question 2

Although many economic development organizations promote entrepreneurship as a means to combat poverty and unemployment, it should not be viewed as a social welfare program. Entrepreneurship programs can help alleviate poverty, but they are just one aspect of that relief. Public policy supports entrepreneurs at the local level for the following reasons:

Small biz - Chap 1 - 5

Answer 2

 Start-up and growing small businesses add to the net-sum gain of jobs.
 Homegrown businesses may be more likely to remain loyal and stay in the area in the future.
 With the increased use of technology to transfer information, more people are able to run businesses out of their own homes.
 Small businesses respond quickly to market shifts, whereas larger manufacturing companies do not have the same flexibility.

Question 3

Who are
Entrepreneurs?

Small biz - Chap 1 - 5

Answer 3

Entrepreneurs are self-motivated people willing to take the risk of going to the marketplace with their product or service. They have strong leadership qualities,
possess an aggressive work ethic, work creatively, and remain motivated in the face of setbacks. Entrepreneurs are a unique breed of individuals who are extremely focused on what they want to achieve. However, even those persons who have entrepreneurial potential need training, technical assistance and capital to succeed in business.

Question 4

Although there is no foolproof test, entrepreneurs certainly should possess a number of the following strengths:

Small biz - Chap 1 - 6

Answer 4

 Problem-solving
 Project/Goal-oriented
 Ambition
 Self-confidence
 Risk-taking
 Decision-making
 Persistence
 Diligent
 Leadership
 Strong communication
 Good networking skills

Question 5

Before starting a business, an individual needs to show his/her commitment and should be prepared for the challenges ahead. The questions provided below
can help an entrepreneur gauge where he or she is in the process and what still needs to be done. While reviewing the list, the entrepreneur will be reminded
that the road ahead is paved with hard work and dedication.

Small biz - Chap 1 - 6

Answer 5

Have the potential entrepreneurs:

 Decided what type of business venture they would like to start? What qualifications do they have?
 Determined if it is feasible to make a profit in the chosen business in this particular community?
 Researched their target market and determined a market niche?
 Written business, financial, and marketing plans?
 Chosen a place to set up business, taking into consideration traffic/parking/delivery space?
 Made a list of materials they will need to start the business?
 Identified potential financing sources?
 Learned how to effectively manage bookkeeping and financial statements?
 Consulted legal teams and regulatory agencies if needed?
 Weighed the disadvantages of being an entrepreneur?
 Considered the changes in personal and family conditions, including
long business hours?
 Developed a strong sense of self-reliance?

Question 6

Institutions (e.g. universities, public sector agencies, financial bodies) provide important services to promote what have been identified as six domains of within an entrepreneurial ecosystem:

Small biz - Chap 1 - 2

Answer 6

(1) a conducive culture, (2) enabling policies and leadership, (3) availability of appropriate finance, (4) quality human capital, (5) venture friendly markets for products, and (6) a range of institutional supports.

Question 7

barriers that can hurt the growth
of a business no matter how good an entrepreneur the owner may be.

Small biz - Chap 1 - 4-6

Answer 7

Such obstacles include difficulty securing sufficient capital, acquiring the necessary
management skills, and accessing markets.

Question 8

Although difficult, entrepreneurs do receive financing to launch their businesses. The most common practice among aspiring small business owners is to seek help from those individuals that they are closest to. The common term that is used in the financial industry to describe these lenders is

Small biz - Chap 1 - 4

Answer 8

the Three F’s (family, friends, and fools).

Question 9

Most business failures are attributed to poor management. Many aspiring entrepreneurs do not have prior experience or sufficient knowledge to run a successful business. As a result, some entrepreneurs are not aware of problems that they may face in the initial years of business. Necessary
management skills include…
Small biz - Chap 1 - 5

Answer 9

inventory, marketing, accounting, finance,
business planning, business law, and personnel recruitment and
management.

Question 10

Some of the most common reasons for small business failure include:

Small biz - Chap 1 - 5

Answer 10

 Insufficient preparation (little knowledge of chosen industry)
 Inability to deliver the product (distribution and delivery system not yet created, or does not meet the demand)
 Inconsistent quality of product or services
 Uncompetitive product design and/or packaging
 Underestimating the competition
 Under-capitalization
 Lack of knowledge or experience with advanced technologies and manufacturing methods
 Problems selecting appropriate equipment, vendors, and consultants
 Lack of understanding of government regulations

Question 11

Small businesses play a fundamental role in local communities and their economies. They affect local competitiveness, diversify the economic base, and stimulate economic development. Specifically, small businesses serve as:

small biz - chap 1 - 6-7

Answer 11

 Employers - creating new jobs and hiring a substantial number of part-time workers and people entering the labor market for the first time.

 Tax Revenue Generators - broadening the tax base, thus generating greater property and income tax revenues.

 Economic Supporters - buying and supplying local products and services. Moreover, income generated by small businesses generally remains within the community, creating a high multiplier effect, thereby
increasing the wealth of the area as a whole.

 Property Owners and Renters - leasing space from local property owners and filling vacant storefronts downtown.

 Providers of Economic Stability - Small, homegrown firms are, by definition, owned and operated by people who have a personal stake in the community, and are thus more likely to remain there.

Question 12

What is a Small Business?

small biz - chap 1 - 7

Answer 12

Small businesses are typically defined by the number of people they employ or by their annual revenues. Although many analysts use smaller parameters such as 20 employees or less, the SBA defines small businesses (for most industries) as entities with fewer than 500 employees. The smallest businesses, called microenterprises, usually employ fewer than five people and are often homebased operations.

Question 13

Facts about small businesses - look at card

small biz - chap 1 - 7

Answer 13

Small businesses:
 Represent 99.7 percent of all employer firms.
 Employ 48 percent of all private-sector employees.
 Pay 42 percent of total U.S. private payroll.
 Have generated 66 percent of net new jobs since the 1970s.
 Create 46 percent of nonfarm private gross domestic product (GDP).
 Hire 37 percent of high tech workers (such as scientists, engineers, and computer programmers).
 Are 52 percent home-based and 2 percent franchises.
 Made up 97.7 percent of all identified exporters and produced 33.6 percent of the known export value in 2013.
 Produce 16 times more patents per employee than large patenting firms.

SBA - probably firms with fewer than 500 employees

Question 14

Despite the wide range of small business types, small
businesses share some characteristics that make them different from large companies. These include:

small biz - chap 1 - 8

Answer 14

Innovation
Smaller firms are more innovative, and experiment with new products and processes compared to larger corporations. According to the SBA, more than half of the nation’s technological inventions originate from small businesses.

Ties to the community
Small businesses are less likely to relocate and frequently hire local residents. They are more likely to be community boosters. Small businesses join local chambers of commerce, sponsor little league teams,
support charities, and sponsor neighborhood events.

Flexibility
Small businesses adapt more quickly to rapid changes in market demand.

Start with little capital
Around half of small business owners start their businesses with less than
$20,000.

Question 15

While small businesses generate important economic benefits, they are not a panacea for a community’s poor economic performance. It is important to recognize that:

small biz - chap 1 - 8

Answer 15

 Typically, seven out of ten new employer firms survive at least two years, half at least five years, a third at least ten years, and a quarter stay in business fifteen years or more.

 The majority of small firms initially offer their employees lower wages and fewer benefits than their corporate counterparts.

Question 16

Technical assistance for small businesses & entrepreneurs generally includes, but is not limited to:

small biz - chap 1 - 9

Answer 16

 Business plan development
 Assistance with grant and loan applications
 Training and managing staff
 Advice regarding financing, marketing, and product development
 Improving the design of a product or the manufacturing process
 Accounting and other record-keeping functions
 Site selection and workforce development assistance

Question 17

A business
assistance provider should understand these stages in order to provide the right
kind of assistance at the right time. Broadly, these stages are:

small biz - chap 1 - 9-10

Answer 17

Creating the Business Idea

Formalizing the Business Plan

Opening the Business

Expansion and Growth

Question 18

Creating the Business Idea business stage explained

small biz - chap 1 - 9-10

Answer 18

The practitioner will need to ask the entrepreneur to vocalize his/her ideas
and help the client determine if he/she is ready to make the commitment to
the new venture. At this stage, it is important to make sure the individual
has thoroughly thought the process through and is ready to deal with the
consequences, both good and bad.

Question 19

Formalizing the Business Plan - biz stage explained

small biz - chap 1 - 9-10

Answer 19

Through this process, the entrepreneur will be forced to face the potential setbacks and limitations new businesses face. The practitioner should be prepared to assist with business and marketing planning, and to offer advice about setting up a viable financial plan. The entrepreneur should have a fully developed service or product and a source of financing. Furthermore, clients in this phase need to consider how much workspace and equipment
will be needed.

Question 20

Opening the Business - biz stage explained

small biz - chap 1 - 9-10

Answer 20

This is the implementation of the business plan; opening up the business, and keeping it running. At this stage, the practitioner should be able to instruct clients on how to manage cash flow, accounting sheets, and inventory. Of course, giving clients tools to monitor progress and learn from mistakes is extremely helpful at this stage of business development.

Question 21

Expansion and Growth - biz stage explained

small biz - chap 1 - 9-10

Answer 21

The entrepreneur should have exhibited his/her ability to manage the business, and should have a solid plan to grow the business and increase operations. The practitioner can provide help with how to access local
talent and workforce development programs, how to financially support growth, and how to identify space requirements and inventory flow. Technical assistance is provided by a variety of organizations, and each
organization has its own objectives. What follows is a brief description of some of those resources. These entities will be discussed in depth in Chapter 2, Technical Assistance.

Question 22

Federal Programs Providing
Technical Assistance for small businesses

small biz - chap 1 - 10-11

Answer 22

Small Business Development Centers (SBDCs)
The Service Core of Retired Executives (SCORE)
Women’s Business Centers
SBA Veterans Business Outreach Center (VBOC) Program
The SBA 7(j) Management and Technical Assistance Program
The US Department of Agriculture
Internal Revenue Service

Question 23

What are the benefits of small business incubators?

Small biz - Chap1 - 12

Answer 23

A business incubator, as its name implies, encourages and supports young companies until they become viable. Incubators provide affordable space and
technical and management support while helping new firms secure equity and long-term debt financing. They also help locate qualified local employees,
potential mentors, and other service providers. Incubators help start-up businesses survive the first few difficult years by reducing operating costs and
providing access to services and equipment that would be otherwise unaffordable to tenants. Businesses that have “graduated” from incubators demonstrate a higher survival rate than similar, non-assisted businesses. Typical incubator services and advantages are listed below.

Low Rent
Shared Support Services
Network Opportunities

Question 24

Although incubator programs offer an array of business growth opportunities, cities often have specific objectives in mind when employing them in a local
area. These tend to fall into one of three categories:

Small biz - Chap1 - 12-13

Answer 24

Technology-based Development
Tech industry incubators are generally affiliated with, or supported by, universities. Universities that conduct serious research have the financial and technological resources that new tech firms need in order to explore
new product ideas and consumer needs.

Local Economic Diversification
Incubators created for economic diversification are generally concerned with housing solid, job-creating businesses such as manufacturers and service firms.

Revitalization
In areas of low economic activity, select incubators focus their efforts on community revitalization. These entities support small, independently owned
companies in regions where aging industrial districts, declining commercial space, or plant closings and layoffs put the entire local economy in jeopardy.

Question 25

There are a number of activities economic development organizations can undertake to stimulate and assist small and start-up businesses. In particular,
these organizations:

Small biz - Chap1 - 14

Answer 25

 Provide technical assistance, education, and training to entrepreneurs and small business owners
 Assist with marketing, including gauging new or existing markets
 Facilitate technology transfer
 Improve access to capital and help develop financial alternatives
 Reduce disincentives and barriers to entrepreneurship. Ease of entry into business is a primary determinant of initial stimulation. Government regulations and community attitudes often serve as early warning signs to would-be business owners that the barriers are too great.
 Invest in basic infrastructure by building a network of entrepreneurial
service providers
 Provide recognition and awareness of successful entrepreneurial ventures as a means of eliciting community support.
 Provide tests for entrepreneurship and assess client potential
 Provide legal information on permits, zoning laws, etc.
 Provide information on the market and demographics
 Highlight and celebrate entrepreneurial success stories in order to promote more community-based entrepreneurship

Question 26

Through such assessments, an organization can determine what role it will play
in supporting local business. Services can include:

Small Biz - Chap 1 - 14-

Answer 26

 Providing small loans
 Establishing a small business one-stop shop
 Setting up a business incubator
 Setting up a 504 CDC
 Sponsoring networking events to bring entrepreneurs together
 Offering business education and training courses
 Providing one-on-one counseling

Question 27

Questions to Ask Yourself When Setting up a
Small Business Development Program

Small Biz - Chap 1 - 15

Answer 27

 Will you be duplicating services provided by other regional EDOs or other non-profit or public entities?
 What is your small business development growth plan?
 What size/type/stage of firm/geographic area will you target?
 What are your long-term goals?
 What resources do you have?
 Where will you concentrate those resources?
 In what areas of the community are small businesses suffering?
 What is the most common complaint of local business owners?
 What other resources are available to small business owners?
 Are they aware that these resources are available?
 How can you cooperate with other economic development resources?

Question 28

Entrepreneurs and small business owners may need technical assistance in the
following areas:

Small Biz - Chap 2 - 19

Answer 28

 Determining what form of enterprise they should start (e.g., proprietorships vs. partnerships, etc.)
 Deciphering specific legal regulations and codes
 Understanding applicable tax requirements
 Writing a business plan
 Access to capital
 Financial management techniques
 Market and competition analysis
 Workforce development
 Commercialization and technology-transfer programs
 Exit strategies

Question 29

In addition to gathering basic demographic and
biographic information, a survey should inquire about current business practices, management techniques, present and future needs, as well as the strengths and weaknesses of the region from a business owner’s perspective. Types of questions might include:

Small BIz - Chap 2 - 20

Answer 29

 What sort of business assistance do they want?
 What business assistance efforts are most helpful?
 In what areas of business management do they feel most weak?
 Do existing businesses use technical assistance providers?
o If so, which one(s)?
 How informative and useful are assistance providers’ services, such as:
o The business-management training program
o The financial program (i.e.: cash flow analysis, balance sheet development).
o Business plan preparation workshops
o Market identification advice
o One-on-one counseling
 How many technical assistance providers are they aware of? (List all of
the assistance providers in the area to find out how outgoing a particular survey participant is, and how well regional providers are marketing their abilities).
 What suggestions does the business have for improving technical assistance services?

Question 30

SBDCs assist various entrepreneurial efforts through three major types of service:

Small Biz - Chap 2 - 23

Answer 30

 Basic Business Consulting
These face-to-face sessions cover whatever the small businessperson needs. Common topics include business plan preparation, market strategies, and competitive analysis.
 Training Programs
These programs are used to inform small business owners of accounting, marketing and other general ownership skills.
 Information Research Services SBDCs can help entrepreneurs determine, for example, their market
feasibility, what their market niche should be, and who their primary customers are.

Question 31

Business Structure: Sole Proprietorships

Small Biz - Chap 2 - 29

Answer 31

The most straightforward organization is the sole proprietorship, as it allows one person to have sole ownership, control, and responsibility. Not surprisingly, this is the most common form of small business. These
structures have the advantage of producing less paperwork than their counterparts, and permits the owner to retain all profits, reduces the number of applicable legal restrictions, and, should it be necessary, allows for the quick and efficient termination of the business. The disadvantages
associated with sole proprietorships are personal liability, difficulties raising capital, and the discontinuation of the business at the time of the owner’s death. The owner of a sole proprietorship always has the option, however, of changing to a partnership or corporation structure

Question 32

Business Structure: General Partnerships

Small Biz - Chap 2 - 29-30

Answer 32

General partnerships differ from sole proprietorships in that two or more people are included in the business enterprise. The advantages of partnerships are that the organization has multiple financial and administrative resources to rely on, and that profits are not taxed directly. Unfortunately, the owners bear unlimited liability for all debts and liabilities. Also, the enterprise ends with the death of one of the partners, and any
partner can change the orientation of the organization. A partnership may be consummated either informally or formally, and, while no formal filing is
necessarily required, an original registration name may be required. In many states, any sole proprietorship, partnership, corporation, or other association that conducts business under an original name must register with the state. For the specifics of how to create such a name, one should contact his or her state government.

Question 33

Business Structure: Limited Partnerships

Small Biz - Chap 2 - 29-30

Answer 33

A limited partnership involves three or more people, and there can be no fewer than two general partners and one limited partner. General partners have the same responsibilities they would have if they were participating in a general partnership. In contrast, limited partners are not involved in the regular management of the organization and, in turn, have limited liability. Thus limited partnerships are different from general partnerships, because at least one of the partners has less responsibility and involvement.

Question 34

Business Structure: Corporations

Small Biz - Chap 2 - 30

Answer 34

The most costly and complex kind of business to create is a corporation. A corporation is a separate legal body that is owned by shareholders. Shareholders are responsible for electing a board of directors which is, in turn, given the duty of operating and controlling the corporation. Because the corporation is an independent legal entity, the corporation, not its shareholders, is responsible for obligations and liabilities associated with the business. In this way, shareholders are isolated from personal liability for claims brought against the corporation. These enterprises are limited to deals detailed in their respective charters; however, many corporations include a general-purpose clause in their charters.

Although this form of business often produces large amounts of paperwork and is taxed twice (once on the profits and once on the dividends paid to
the owners) there are several advantages to it. First, a corporation can accumulate income and pay taxes at a lower marginal rate than an individual. Second, the function of a corporation is not affected by the
death of an owner, nor changes in stock distributions. Corporations are frequently considered to be serious enterprises, so another advantage of a corporation is that it can offer the owner more credibility with banks and lenders. If an entrepreneur wishes to start a corporation, they will need to file Articles of Incorporation. The various requirements governing
incorporation vary according to the state where the business will reside.

Question 35

Business Structure: Limited Liability Companies and Partnerships

Small Biz - Chap 2 - 31

Answer 35

Limited Liability Companies and Partnerships
Limited liability companies provide the protection of a corporation with the flexibility of a partnership. They combine the limited liability that a corporation affords its shareholders with the tax status a partnership
receives. Similar to a corporation, responsibility for claims against the corporation rests with the corporation itself and not with the individual
owners. Concurrently, much like a partnership, business income and losses are distributed to the owners of the business.

Question 36

Business Structure: S Corporation

Small Biz - Chap 2 - 31

Answer 36

S Corporations elect to be treated for federal tax purposes under Subchapter S of the Internal Revenue Service Code and meet the subsequent criteria. With a business structured in this manner, individual
shareholders pay corporate net income personally, as though it were a partnership. Thus, an S corporation files an information tax return in order to report its expenses and income, but it is not separately taxed. Income and expenses of the corporation are divided among the shareholders in proportion to their holdings, and profits are taxed at the shareholders’ respective tax rates.

Question 37

Business Structure: C Corporation

Small Biz - Chap 2 - 31

Answer 37

The C Corporation designation refers to a standard state-formed corporation. A corporation assumes a separate legal and tax life distinct from its shareholders. A corporation pays taxes at a corporate income tax rate and files corporate tax forms each year (IRS Form 1120). The C Corporation may become a public corporation, with its shares being bought
and sold either through a stock market or “over the counter”. C Corporations may ordinarily deduct the entire value of fringe benefits offered to shareholders who also serve as employees. Unlike an S Corporation, there is no limit on the number of shareholders. In addition, people who are neither citizens nor residents of the United States may hold shares. Another advantage to the C Corporation is its flexibility to carry
corporate losses forward to future tax years.

Question 38

Assets are positive items on the balance sheet. Categories might include:

Small Biz - Chap 2 - 36

Answer 38

 Working capital
 Cash from sales
 Accounts receivable
 Inventory
 Fixed assets (machinery, fixtures, furniture)

Question 39

Liabilities are negative items on the balance sheet. These categories might
include:

Small biz - Chap 2 - 37

Answer 39

 Rent
 Payroll
 Accounts payable
 Legal fees
 Insurance
 Postage

Question 40

it is very difficult to find staff members that have all of these capabilities. Regardless, there are a variety of traits that EDOs should look for in staff members who advise entrepreneurs and small businesses. Potential advisors should have:

Small Biz - Chap 2 - 39

Answer 40

 Business and managerial experience
 The ability to work through credit analysis
 The ability to leverage available city, state and federal resources
 The ability to listen and communicate well
 The ability to speak multiple languages with foreign entrepreneurs in communities where these are significant.
 Knowledge of market and feasibility studies

While all these skills are important, the first is essential.

Question 41

A participant screening process should be part of program development. Spending too much time on
clients who are not truly serious about their business ventures can drain the energy of staff workers. Basic criteria commonly used by entrepreneur training
programs for participant selection include:

Small Biz - Chap 2 - 41

Answer 41

 Self-selection
 Target group characteristics
 Commitment
 Merit of the business idea
 Informal judgment about the candidate’s personal situation and ability to complete the program

Question 42

While the criteria (criteria used to select entrepreneur clients) may differ from program to program and by the needs of the community, there are two questions EDO staff should ask all interested entrepreneurs:

Small Biz - Chap 2 - 41

Answer 42

 How much relevant business management experience do you have in this field?
 How much of your own cash will you be willing to put into this business enterprise?

If the answer to one or both of these questions is little to none, then the EDO should ask the aspiring entrepreneur to consult the chamber or seasoned
entrepreneurs who can help them understand the process. In this situation, the EDO best serves the potential entrepreneur by advising him or her to get more experience in the industry. Similarly, if the entrepreneur does not have cash, or is unwilling to put cash into the business, the business will have difficulty
competing. While outside sources of funding may be available, it is still very difficult to get a business off the ground without a personal supply of cash.

Question 43

While foreign entrepreneurs receive the same services economic developers
provide to domestic entrepreneurs, they often face unique challenges to starting
and operating a business, such as:

Small Biz Chap 2 - 42

Answer 43

 Difficulty accessing credit;
 Unfamiliarity with U.S. institutions;
 Lack of financial literacy and management skills;
 Language barriers;
 Accessing existing business support;
 Uneven awareness of the value of training for themselves and their employees; and
 Poorly developed business networks

Question 44

The first step in creating an economic gardening program is to understand the different stages of entrepreneurial and small business development growth, because each stage of growth needs different types of support and access to resources. The following three categories will help economic gardeners understand the three stages of growth

Small Biz - chap 3 - 52

Answer 44

 Start-up companies: Start-ups are new business ventures where innovation drives a person or a group of people to formally organize and start a business.

 Second-stage companies: The Edward Lowe Foundation describes second stage companies as “those that have grown past the start-up stage but
have not grown to maturity. They have enough employees to exceed the comfortable control span of one owner/CEO and benefit from adding professional managers, but they do not yet have a full-scale professional management team.”

 Gazelles or high-impact companies: Gazelles often emerge in business-to business markets (usually in deregulated or newly emerging industries) where they can capitalize on niche opportunities. Most importantly, gazelles experience a rapid stage of expansion, growing at least 20 percent per year over the previous four years. They are usually small-or
medium-sized companies.

Question 45

When working with start-ups and second stage companies, the main features of a gardening program are the following:

Small Biz Chap 3 - 52

Answer 45

 Connectivity: successful entrepreneurs are grown when there is an environment of teaching, mentoring and networking, especially in secondary education institutions.

 Market Research: a hallmark of economic gardening is the emphasis on high power tools for competitive intelligence – including the use of market databases, GIS systems, trademark research, web optimization
and other value-added, knowledge-based tools.

 Community and Workforce Development and Infrastructure: entrepreneurs thrive in an environment rich in community assets including education, community amenities, meeting places and incubators.

Question 46

Economic gardening works well when a small business owner who has a vested interest in community, is ready to enter a growth stage. Gardening is more about developing a culture that embraces entrepreneurship and creates a thriving place to do business. Here are a number of ways communities have empowered their entrepreneurial culture:

Small Biz Chap 3 - 56-57

Answer 46

 Converting grocery stores into local food production centers
 Creating a single, agency-driven overlapping network of investors and entrepreneurs
 Teaching people how to network and providing networking opportunities
 Turning public libraries into economic gardening hot spots
 Creating a Business Plan Awards Program
 Establishing an Entrepreneur Day at local high schools
 Building an Entrepreneur Hall of Fame
 Recognizing home-based businesses and helping them grow

Question 47

What is Economic Gardening?

Small Biz chap 3 and ICMA Article

Answer 47

ICMA: Economic gardening is an entrepreneurial approach to economic development that seeks to grow the local economy from within. Its premise is that local entrepreneurs create the companies that bring new wealth and economic growth to a region in the form of jobs, increased revenues, and a vibrant local business sector. Economic gardening seeks to focus on growing and nurturing local businesses rather than hunting for “big game” outside the area.

IEDC - small biz Page 49 Gardening means growing jobs in the community through the provision of entrepreneurial support services instead of recruiting employers with attraction activities. Simply, gardening is considered an inside-out vs. an outside-in strategy for economic development.

Question 48

A business Plan:

Small Biz Chap 4 - 61

Answer 48

 It is a guide for future business growth and development, and should include sales and profitability milestones.
 It identifies customers and target market(s), and the methods by which the product or service will be sold.
 It analyzes the competitive environment, including the strengths and weaknesses of competitors.
 Most importantly, it will open the doors to the investment process. While many other items (e.g. personal guarantees, surrendering part of the business’ equity interest) may be required before a bank or investor will provide financing, a well conceived business plan is the absolute minimum for getting a foot in the door.

Question 49

Five Points to Address before Writing a
Business Plan

Small Biz Chap 4 - 61-62

Answer 49

 EXPRESS the reasons why customers will buy and use the product or service, rather than the competitors’ products or services in 100 words or less.
 EXPLAIN why larger competitors will not copy the product or service and push the new venture out of the market with lower prices, wider distribution, and more promotion in 100 words or less.
 PROJECT adequate financial returns and achievable financial needs in a simple income statement and balance sheet, on one page or less.
 DESCRIBE the background knowledge, skills, and managerial abilities that make the entrepreneur able to start this venture and contribute to its success, in 100 words or less.
 DEFINE the personal goals, current needs, and future interests that make the entrepreneur willing to devote the next five to ten years to the venture’s growth and success, in 100 words or less.

Question 50

The executive summary of a business plan highlights key information contained in the body of the
business plan. It consists of a series of one or two sentence answers to the following six questions:

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Answer 50

 What is the business?
 What product or service does the business provide?
 What is the target market, and how will the business differentiate its product from other competing products in the marketplace? How will the business gain a sustainable competitive advantage?
 How much money is needed, and what will this new financing be used for? How will this improve the business?
 How will the loan be repaid (if applicable)?
 What unique management team strengths and backgrounds will enable them to achieve the business objectives?

The executive summary should be no longer than one page, and written in short, easily readable paragraphs. It may be wise to write the summary after composing the body of the business plan, to ensure that the most important elements are included in the executive summary.

Question 51

Description of the Product or Service

When writing a business plan, clearly indicate what product or service is being sold, and how it will differ from competing products or services already available. The description must answer each of these questions:

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Answer 51

 What benefits (as opposed to features) does the consumer gain from using the product or service? For example, XYZ Coffee House’s premium fresh roasted coffee bean flavors are product features, while XYZ’s student discounts are customer benefits.

 How does the product or service differ from competitors’ products and services? If the new product or service is not state-of-the-art technologically, unique, or otherwise special (and most new products
and services are not), what will cause people to buy it?

Question 52

Industry Analysis: Entrepreneurs must demonstrate solid research and knowledge of the industry when writing a business plan

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Answer 52

o Are firms entering or exiting the industry?
o How do firms in the industry compete?
o On pricing?
o On production capability?
o On product quality?
o On quality of customer service?
o On location and convenience?
o On technological innovation and new product introductions?
o How do firms deliver the product to consumers and/or retailers?
o Direct mail?
o Wholesalers/distributors?
o Online? (e.g., mobile device applications)
o How difficult is it for a new entrant to gain access to
the means of distribution?
o What impact will political, environmental, social, and
technological changes have on the industry (i.e., PEST analysis)? For example, what impact would a resumption of the political unrest that characterized Central America throughout the 1980s have on the supply of organic coffee beans for XYZ Coffee House?
o How do firms in the industry obtain financing?
o Are there any emerging trends in the industry (e.g. are independent business owners being bought out by regional or national chains)?

Question 53

Competitive Analysis Section of a business plan

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Answer 53

o Now that the industry’s size, health, driving factors, and trends have been identified, the strengths and weaknesses of competing
firms must be realistically assessed, and the market share of each firm should be determined. This information may well be gathered through networking and informal channels; most new
businesses compete against other small businesses, and little formal information (i.e. annual reports) is available.

o Entrepreneurs should find out how major competitors and industry leaders are doing. This includes reading competitor financials, examining competing products, and observing marketing strategies.

o Once this information has been gathered, assess what each competitor offers in response to various customer needs, and decide what the new business will offer in comparison.

Question 54

What are the 4 P’s of marketing? (biz plan chapter)

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Answer 54

Product
o Restate what the product or service is, what features will be emphasized and its deliverables
o Explain how it will fill some unmet need for consumers in the target market niche(s).

 Price
o State what the pricing strategy will be. The price must allow products to penetrate the market, maintain market position, cover internal costs, and still produce
a profit. Beware the temptation to solely pursue a low pricing strategy. A low price frequently conveys an image of low quality.

 Placement
o Placement refers to offering the product or service to consumers in the right place, and getting the product or service into the hands of customers. To do this effectively, firms need to have identified the target customer group through market research. For example, if the product were a line of designer
neckties with modern art designs, they would probably be best offered to customers through Macy’s or Nordstrom’s rather than Wal-Mart.

 Promotion
Promotion is often considered the heart of the marketing mix, as it informs prospective customers that the company has the right product available in the right place at the right price. A month-by month schedule and budget for the next year’s promotional activities should be included.

Question 55

Creditors and equity investors use three types of financial statements to evaluate
the strength of the business:

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Answer 55

the balance sheet, the income statement, and the

cash flow statement.

Question 56

Definition of balance sheet (small biz chapter)

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Answer 56

The balance sheet shows the financial position of the company at a specific point in time. Companies prepare balance sheets at regular intervals, usually at
the end of each month. It is composed of three parts: assets, liability and equity.

Question 57

What is an asset?

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Answer 57

Assets are economic resources owned by the business that will benefit future operations. Some examples are cash, accounts receivable, equipment, land, inventory, and prepaid expenses. Assets are divided into two broad categories: current assets and non-current assets. Current assets will mature into cash within the next 12 month period. Assets that will gain maturity in more than 12 months are considered non-current. The concept of depreciation is essential to understanding the value of assets. Physical assets of the business, land or equipment, have limited useful life. Depreciation determines an estimated useful life of an asset (for example, 10 years for a $50,000 piece of equipment) and then allocates a cost of that asset over uniform periods of its useful life.

Question 58

What is a liability?

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Answer 58

Liabilities are obligations of the business. Examples include accounts payable, loans, and deferred revenue (revenue that the business has already received for future delivery of a good or service). The deferred revenue liability is paid through these goods and services rather than cash. A very basic, yet crucial financial concept is that legally, creditors have first claim over business assets before the owners. Like assets, liabilities are broken down into two broad categories: current or short-term debt, and noncurrent
or long-term debt. The same 12 month period serves to
differentiate between short and long term liabilities. However, many longterm liabilities, like debts, are paid in installments, and whatever portion of the debt principal that is due in one year is the “current portion of longterm debt.”

Question 59

What is Equity?

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Answer 59

Equity (or net worth) is the amount of claim the owners or stockholders have to the business. Equity increases either through capital investment by the owners or profitable operation/retained earnings of the business.
Capital investment is expressed by the term capital stock, and money invested in the business as a result of profits is termed retained earnings. Profits of the business not reinvested are paid out to stockholders in the form of dividends.

Question 60

The Income Statement

An income statement, or the profit/loss statement, summarizes the income, expenses, and profitability of a business over a certain period of time. It has several components:

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Answer 60

Net sales
Revenues and sales minus any minor deductions such as product returns.

Revenues
Total earnings accrued by the sale of goods and services. A service firm’s sole source of revenue is the services sold.

Costs of goods sold (COGS)
The direct costs associated with the generation of revenues. For merchandising companies the price of goods purchased for inventory usually determines the cost of goods sold. For manufacturing concerns, the
cost includes raw materials, labor machining, shipping, etc.

Gross profit
Net sales minus cost of goods sold. Merchandising entities use this to measure the profitability of the inventory.

Other income
Any other monies earned, such as interest revenue.

Sales and General Administrative Expenses
This category covers operating expenses that accrue during the period of the income statement, including officers’ salaries, rent, utilities, fringe benefits, advertising, and so on.

Net income
Net income is the total excess of revenue over related expenses for the period of the statement.

Question 61

The Statement of Cash Flows
Statements of cash flows provide information about a company’s cash receipts (monetary inflows to the business) and cash payments (monetary outflows). In
essence, it shows the sources and uses of cash. This statement reconciles the net cash flow with the cash category on the balance sheet. Specific business
activities use different types of cash flow.

Explain Further

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Answer 61

Estimated Sales
Virtually all financial projection calculations are based on the first year’s estimated sales level. Unfortunately, estimating future sales without a prior track record can be one of the most difficult tasks for a new entrepreneur. Make sure that all assumptions are clearly spelled out and that there is room for re-estimation.

Costs and Expenses Forecast
Like estimated sales, cost and expense projections are also crucial for accurate financial calculations. With proper research, future costs and expenses can be precisely estimated. The general rule when forecasting expenses is to always err on the pessimistic side.

Cost of Sales/Manufacturing
Contact potential suppliers and determine a fairly narrow product cost range. If applicable, gather estimates of the best input prices.

Selling, General, and Administrative Expenses
Some expenses, such as rent, phone service, and insurance will be known if the business location is established; others such as electric, gas, and sewage
can be estimated by contacting the utility provider. Perusing employment ads in the local newspaper can indicate prevailing wage rates for the appropriate workers. Advertising and related marketing expenses can be estimated from rate quotes and the promotion portion of the marketing strategy.

Question 62

written narrative that answers the following questions
should accompany the itemized list of intended uses when completing an Application And Expected Effect of Loan/Investment:

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Answer 62

o What items will be purchased? At what price?
o What are the specific models numbers and/or names of the equipment to be purchased?
o How much will be paid in sales tax, installation charges, and freight or delivery fees? This is important for loan seekers, because the bank will want to use the new equipment as collateral for the loan. Sales tax, installation charges, and freight or delivery fees cannot be included as collateral.
o Most importantly, justify why these particular items are necessary for the business. How will the new money/purchases make the business profitable?

Note that the items are listed in order from most illiquid assets (difficult to convert to cash in a short period of time), to the most liquid (cash). Present intended fund uses in the same order, or the banker/investor may believe that the venture is on the brink of insolvency.

Question 63

What is a Capital Equipment List for a Business Plan?

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Answer 63

This section should begin with a list of the capital equipment the company owns, or will accumulate upon opening the business. This provides an inventory of capital assets for insurance purposes, helps estimate utility and equipment maintenance costs, and provides the banker or investor with a list of collateral assets that can be seized or sold off in the event of a loan default or insolvency.

Capital Equipment Can Include:
 Office furniture and business machines (desks, computers, photocopiers)
 Store fixtures (display cases, refrigeration units, permanent fixtures such as air conditioning and lighting)
 Machinery used to make products or deliver services (milling machines ovens, medical equipment)
 Delivery vehicles

Question 64

What is a “Balance Sheet” as it pertains to a business plan?

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Answer 64

The balance sheet provides a picture of business assets (what it owns), liabilities (what it owes), and the company’s net worth at a particular moment in time. The initial balance sheet outlines how the venture will be financed and how funds will be allocated. The
standardized format provides prospective creditors or investors a means of comparing the financial position of businesses.

It is important to follow the conventional order of categories on the balance sheet. Assets are arranged in order of decreasing liquidity, while liabilities and owners’ equity minus liabilities are listed in order of decreasing immediacy.

See page 77 for example

Question 65

Ratio Analysis What are the ratios that may be included in a business plan according to chapter 4 of Small Biz? What are good numbers?

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Answer 65

Working Capital = Current Assets - Current Liabilities
A low or negative number signals serious danger, as it means that a firm is illiquid, and may have to sell some assets to meet current liabilities.

Current Ratio = Current Assets / Current Liabilities
Most bank officers prefer a ratio of at least 2.0

 Break-Even Analysis
Expressed in either dollars or unit sales, a break-even analysis states the exact sales level needed to cover costs. Moreover, this is the exact point where the venture will neither lose nor make money. Based upon previous calculations, realistic estimates can be made
for the first year of business operation.

The break-even point is calculated as follows:
Fixed Costs/(Gross Margin x Variable Costs)= break Even point

Fixed Costs: Include office overhead (rent, salaries, taxes), interest charges on loans/ mortgages, and depreciation. They remain constant regardless of sales volume.

Gross Margin: Sales minus the final cost (producing or purchasing) of goods sold.

Variable Costs: Include commission, variable labor, and other industry specific costs that fluctuate with the amount of sales.

A break-even analysis helps ensure that variable costs remain at acceptable levels as sales grow. Many new businesses experience strong sales growth, yet fail to turn a profit because they allow variable to grow at an even faster rate. The break-even analysis
establishes break-even points associated with different sales and cost estimates, showing several scenarios (best, worst, and most likely cases) the business is likely to encounter.

Question 66

What is an Income Projections, a.k.a. Profit & Loss Statement as it pertains to a business plan?

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Answer 66

Income statements complement the balance sheet and provide a detailed account of business activity for the first year. While balance sheets give a static picture of the business at a specific moment in time, income statements give an account of the business over a
period of time. Unlike balance sheets, income statements reflect business sales and expenses. Income statements can be constructed monthly, quarterly, or annually. Again, note that this is only a representative sample, and negative figures are indicated by parentheses.

Question 67

What is a cash flow projection as it as it pertains to a business plan?

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Answer 67

Cash Flow Projections

A cash flow projection can be the most important financial tool for new businesses, and should be constructed on a monthly basis throughout the first year of operation. Cash flows highlight the amount and timing of money coming into and going out. borrow money to meet unforeseen cash needs. Illiquidity is a killer, even for profitable businesses. Lack of profits will not kill a business (non-cash expenses such as depreciation can make profits look negative, even while cash flow is positive), however, lack of cash to pay vendors and suppliers will.

Based upon the stated assumptions, a monthly cash flow projection is generated by taking the business cash balance on the first of the month, adjusting monthly for factors such as business seasonality,
and adding projected cash inflows from activities like:
 Cash sales of products
 Cash generated from collections of receivables
 Cash generated from asset sales
 Cash generated from recovery of bad debts
 Cash received from loans
 Cash received from new equity investment in the
business
 Miscellaneous cash received (e.g. interest earned on the balance in the business’s checking account)

Next, subtract all cash disbursements, again adjusting for seasonality, such as:
 New inventory purchased for cash
 Raw materials and equipment purchased with cash
 Salaries and wages. FICA, federal and state income tax withholding
 Fringe benefits paid
 Insurance premiums
 Accounting and legal fees
 Utility costs
 Advertising expenses
 Debt service payments
 Transportation and freight costs
 Taxes payable, including income, property, sales, and
excise taxes
 Provision for unforeseen expenses (if funded)

At the end of each month, the projected cash position should be positive. If not, corrective action must be taken to ensure to the business meets its obligations. For most new businesses, this means reducing expenses in order to remain within the cash flow boundaries defined by sales. The implications of
changes in basic assumptions should be discussed, because it demonstrates management’s ability to plan for contingencies.

Question 68

Similar to developing a business plan, creating an export plan can be a challenging endeavor for small business owners. It requires in-depth research, forces business owners to think critically about how their product or service creates value for foreign consumers, and involves thorough assessment of promising foreign markets. Developing an export strategy typically includes:

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Answer 68

✓ An assessment of the product or service’s export potential;
✓ Identification of key foreign markets;
✓ Consideration of appropriate distribution and promotional options;
✓ Determination of competitive export prices, payment terms and methods; and
✓ Familiarization of available shipping methods, export documentation procedures, export financing, and other exporting requirements

Question 69

Before starting the export plan, business owners should be able to:

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Answer 69

✓ Express the reasons why overseas customers will buy and use the product or service, rather than the competitors’ products or services in 100 words or less.

✓ Explain why larger competitors will not copy the product or service and push the new venture out of the market with lower prices, wider distribution, and more promotion in 100 words or less.

✓ Project adequate financial returns and achievable financial needs in a simple income statement and balance sheet on one page.

✓ Describe the background knowledge, skills, and managerial abilities that lend to exporting success in 100 words or less.

✓ Define how international trade fits into the business’s long-term goals in 100 words or less.

Question 70

A survey of San Diego businesses found that the largest barrier to exporting was not financial or technical, rather, companies simply lacked information regarding export markets. “Companies aren’t always aware of the opportunities available in foreign markets. Part of what we have to do is better connect them to those opportunities,”

Market research is one of the most complex tasks for small businesses because they often lack resources for the task. They therefore often engage consultants, state governments, and EDOs to assist them in exploring potential export markets. At the very least, market research should identify destinations that:

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Answer 70

✓ Are comparable U.S. and global exports;
✓ Have high domestic demand for comparable products; and
✓ Are similar to the region of the United States that is a company’s current primary market.

Once a shortlist of potential target countries is developed, researchers should probe more deeply into the selected countries, investigating issues such as macroeconomic factors, regulatoty requirements, potential distribution networks, consumer demographics, and the competitive environment.

Question 71

Direct Exporting Explained

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Answer 71

Direct Exporting
Advantages of direct exporting include greater control over the export process, closer ties with overseas buyers, and more opportunities to learn how to increase business competitiveness.

Exporting requires specific expertise and staff in order to locate foreign client base, coordinate shipping arrangements, and process invoices. Another consideration for direct sellers is the sales-worthiness of potential buyers. Companies need to screen them for their sales ability and the chance that they will default on payments.

Selling directly avoids intermediary costs and gives a company greater control over pricing. Additionally, direct exporters take on both the risks and rewards of being responsible for payment collection and product service.

A critical decision for companies selecting the direct sales route is to decide the terms of sale-i.e., where it will make the product available. Companies may ship their product to the customer, undertaking the responsibilities of packing, shipping overseas, clearing customs, and shipping with.in the destination country (“Cost Insurance and Freight” or CIF), or they may make the customer responsible for aU shipping past the factory gates (“Ex Work” or EXW).

E-commerce allows firms to inexpensively market and distribute their goods overseas through their own website or through sites such as eBay, Alibaba, and Amazon. One of the advantages of these modes is that payment is relatively secure and immediate through online payment applications, such as PayPal.

Question 72

Indirect Exporting Explained

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Answer 72

Indirect Exporting
The main advantage of indirect exporting is that it provides small businesses an easier, less time-consuming, & less risky way to enter foreign markets. With indirect exporting, small businesses sell through “intermediaries,” such as distributors or agents. Distributors purchase goods from the small business and then sell them at a markup. Distributors usually are responsible for installing and servicing the goods. The various types of distributors are listed below:

• Confirming houses are buying agents taht represent foreign firms.
• Foreign trading companies buy US goods then sell them overseas as is.
• Export agents, merchants, & remarketers purchase products from American firms & repackage & label them for foreign consumption.
• In piggyback marketing, another U.S. firm with a complementaty product purchases a firm’s products, and in turn, exports the goods as part of a complete product line

Agents represent the exporter—developing sales, arranging payment, preparing documents, & clearing goods through customs. Agents use the company’s promotional material to sell products abroad but often assume no risk or responsibility. Agent relations are usually not exclusive, meaning that agents may also sell competitors’ products. gents and distributors in small markets often cany large lines of merchandise; in larger markets, they tend to be more specialized. A firm can outsource the entire export process to an export management company (EMC), which manages all facets of exporting, from researching markets to collecting payment. EMCs often specialize in a particular market (region) or industry. A firm can also outsource to an export trading company (ETC), which function like an EMC, except that they accept title to goods that are being exported and are often more transactional and demand­ driven.

Indirect exporting is thus a cost-effective, low-risk approach to exporting, explaining why it commonly employed by small businesses and novice exporters.

A major drawback of indirect exporting, however, is that it affords the producer little control over how its products are packaged, shipped, and marketed. Producers that export indirectly enjoy lower profits and gain less information about customers and competitors than do direct exporters.

Question 73

What is the goal of an incubator?

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Answer 73

The goal of incubators is to help establish self-sufficiency, with enough capital to afford rental space in non-incubator facilities.

115 - The main goal of a business incubator is to graduate tenants into hte community once they are able to operate successfully independent of hte incubator.

Question 74

Small business incubators provide a variety of services that are critical for successful tenant growth and development. While the specific services differ from location to location, there are four basic areas in which incubators assist their tenant businesses:

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Answer 74

The Incubator Organization/Environment: In the incubator environment, small businesses join formal and informal networks that assist their ventures in the present and the future.

Multi-tenant Real Estate: Since small businesses generally have minimal space requirements, multi-tenant buildings make start-up rental space more affordable.

Business Consulting Services: These services aid inexperienced managers and entrepreneurs with responsibilities like marketing and financial management.

Shared Office Services: Incubators offer office support services, like photocopying and meeting room space, that many small businesses need but cannot afford.

Question 75

Incubators are used to meet three objectives:

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Answer 75

Technology-Based Development

Through incubator projects, colleges and universities commercialize technology, improve links with community business and industry, and create student employment opportunities. A high-growth firm can reach $20 million in sales and 400 employees in five to 10 years. Furthermore, studies have shown that these firms account for up to 50 percent of new jobs created. Fostering high-growth technological development requires extra marketing and financial assistance and sophisticated technical assistance. Tech industry incubators are commonly associated with universities, medical centers, federal research and development (R&D) labs, or industry R&D divisions because of their financial, technological and research resources.

Economic Diversification

Some communities encourage the development of solid, job-creating businesses such as manufacturing or service firms to promote economic development, rather than nurturing risky, high growth firms. Moderate growth firms offer a stable employment base & keep the local economy competitive & strong. Since they require moderate equity & financial assistance, incubators that serve to diversify the economic base should be strongly integrated into the community.

Community Revitalization

Business incubators for community revitalization generally serve small, independently-owned, & operated firms in a narrow geographic market. Typically sponsored by public or non-profit organizations, these incubators are located in areas with low economic activity like aging industrial districts, declining commercial areas, or areas experiencing plant closings or major layoffs. Community revitalization incubators focus on providing tenants with business basics such as marketing, cash flow management, and accounting control, making them relatively low-cost projects.

Question 76

What is the difference between and accelator and an incubator?

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Answer 76

Incubators aim to help start-up businesses, accelerators are more focused on specialized strategy development & advanced technical training for busineses that have already developed a promising or viable product or technology.

Question 77

Parts of an incubator feasibility study?

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Answer 77

Comunity, Economic Base, & Market Niche Definition
- A market niche is a narrow market segment that is underserved and has easily identifiable needs.

Potential Sites
- Negative cash flow and and 8% vacancy rate should be included in analysis

Cash Flow Analysis

Management Structure

Legal Issues
- support for industry specific legal advise for clients (business) Can vary widely based on business type.

Question 78

The incubator the mission statement should:

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Answer 78

 Specify the primary reason for the incubator’s existence (in most cases, to create jobs or diversify the local economic base)
 Establish the scope of the incubator’s activities
 Provide overall direction for the incubator (sector or industry specific)
 Reflect the incubator’s unique strengths (e.g., broadband access, unique talent pool)

Question 79

Synergy

Most importantly, an incubator must promote tenant interaction and encourage
tenants to learn from one another’s successes and failures.

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Answer 79

All small businesses
share some common management and operation experiences. Sharing experiences through the incubator network distinguishes the facility from
conventional real estate. The more shared areas there are in an incubator, the more interaction there will be. Common areas include lobbies, kitchens, break
rooms, and courtyards. The positioning of firms in the building also affects the amount of tenant interaction, and should be considered in site selection. Some
incubators also implement programs such as brown bag lunches or a lecture series to increase the amount of networking time available.