State Self-Employment Policies: A Decade of Change

Introduction

In 1992, RTC: Rural researchers surveyed state Vocational Rehabilitation (VR) agencies on their self-employment policies and procedures. Forty-five VR agencies (excluding visual services agencies) responded to this initial study.

In 2002, RTC: Rural researchers conducted a follow-up investigation to determine whether state self-employment policies had changed over the decade in response to several factors, including: (1) RTC: Rural's dissemination of its model policy and procedures; (2) Changes in the 1998 Reauthorization of the Rehabilitation Act acknowledging self-employment as an employment outcome; and (3) The success of VR agencies, individual practitioners, and services providers using self-employment as an outcome.

Methods

In 2002, researchers requested a copy of state self-employment policies and procedures from each of 82 VR departments (including visual services agencies) in the 50 states and the District of Columbia. Fifty-four agencies responded for a 65.9% response rate. Two researchers independently compared state policies and procedures with the RTC: Rural's model self-employment policy components:

RTC: Rural Model Components

Counselor assesses individual's business potential.
Consumer develops business idea, explores business idea's feasibility, and conducts market analysis (with assistance and review by counselor or outside consultant).
Consumer obtains needed education and business training.
Consumer obtains technical assistance needed for business development process.
Consumer develops business plan.
Consumer explores and applies for resources available from other sources.
Agency (or qualified individual) reviews business plan for long-term feasibility.
Agency provides regular follow-up of business until case is closed.

Results

In 1992, 45 state agencies responded; and in 2002, 54 state agencies responded. In 1992, ten VR agencies had no written self-employment policies; in 2002 only one agency had no policy. Thirty (56%) of the current self-employment policies had been published after the 1998 Reauthorization of the Rehabilitation Act, perhaps in response to its endorsement of self-employment as a viable vocational outcome. The average 1992 state policy addressed 3.7 of the eight model policy components; in 2002, the average policy addressed 6.6 components.

"Incorporating agency review of a proposed business" was the component with the greatest increase in prevalence (36% of 1992 plans; 89% of 2002 plans). This component was followed closely by "Requiring the development of the business plan," (49% of 1992 plans; 96% of 2002 plans). "Consumer obtains needed education" was the least prevalent component in 1992 and "Agency follow-up" was the least included component in 2002 (54%).

Thirty-seven general or combined state agencies provided policies and procedures in both 1992 and 2002. Figure 2 reflects data for agencies participating in both 1992 and 2002 and compares the percent of programs including each model policy component.

Description of Figure 2

Figure 2: Percent of 1992-2002 Respondents Including Component

In addition to including more model components in written state VR policies, many agencies published self-employment manuals and checklists for counselors and consumer resources such as fact sheets and planning guides. Agencies also developed services or use programs that specifically help people with disabilities develop successful businesses.

Business Feasibility

The most frequently used feasibility assessment methods are "the business plan" (31%) and "asking questions about the business" (20%). Less-frequently used methods include "working with a consultant to conduct a feasibility study," "conducting a market analysis," "conducting research on the proposed business," "using a checklist," and "taking business courses."

Education and Technical Assistance

Eight agencies (15%) specify Small Business Development Center (SBDC) or Senior Corps of Retired Executives (SCORE) training for developing a business plan and learning about specific business topics such as bookkeeping and marketing; 25 agencies (46%) specify SBDC/SCORE classes plus training activities such as school, correspondence classes, and apprenticeships. Fifty state policies (93%) require or recommend technical assistance as part of the business development process. In addition to using community services such as SBDC, SCORE, and colleges and universities, several agencies have either developed their own programs or contract for technical assistance with external sources.

Business Plan Development

Fifty-two agencies (96%) require the development of a business plan. Of those, 21 (40%) require that clients work with a business development consultant to develop a business plan. Thirteen agencies (24%) require a business plan and identify required topics to address. Fifteen agencies (28%) require that the consumer complete his or her own plan, but do not identify topics to address.

Funding for the Business

Forty-four state policies (81%) address business funding but policies are quite varied. Three agencies fund the entire business without limits and without requiring the consumer to explore external funding. Three agencies require a 10% contribution from the consumer regardless of the total amount requested. Eight agencies require external funding but do not specify a required dollar amount. Two agencies base their contribution on the consumer's ability to contribute or on the consumer's assets. Nine agencies require that the consumer apply for a loan or explore other funding sources, but appear to fund the entire business if loans are unavailable. Six agencies provide all funding for businesses under a certain amount and require consumer funding or securing loans for businesses above these amounts. The term "initial stocks and supplies" is interpreted in many ways: some states set no limits; some set monetary limits; and some set chronological limits (e.g., one month, six months, etc.).

Agency Review and Follow-up

Forty-five agencies (83%) review the proposed businesses in a variety of ways, including reviews by external business developers; by review committees consisting of internal and external reviewers; by in-house review specialists; or by the VR counselors, supervisors or managers. Until the case is closed, 29 agencies (54%) periodically review a business's profit/loss statements, income/expense statements, books, and tax returns.

Discussion

Results from this 10 year follow-up show remarkable growth in VR self-employment policies and procedures. Each agency's policy and procedures are unique, reflecting the state's fiscal constraints and its approach to self-employment. The most dramatic policy changes are that agencies (1) Recognize that it's important for consumers to develop their own business plans and (2) Provide more guidance for counselors on how to initiate and follow through on a self-employment plan. In the past, counselors often did all the work to develop businesses or were responsible for writing business plans (Arnold & Seekins, 1994). Now, counselors usually facilitate the process, and consumers develop their businesses and business plans with assistance from external business developers. Most agencies realize that professional business assistance is important, and most policies require or recommend that consumers obtain professional help.

Vocational Rehabilitation funding has two components: "initial stocks and supplies" and "overall funding limits." The 1998 Reauthorization of the Rehabilitation Act authorizes VR to purchase "initial stocks and supplies" - an invaluable business startup service for people who lack the credit, capital, or collateral to purchase such items. Many agencies find the meaning of "initial" unclear. Does it refer only to the stocks and supplies a business needs to open its doors, or does it include replacing depleted stocks for the first two months, four months, six months, or first-year of business? State agency policies show a wide range of interpretation of "initial stocks and supplies."

Agencies also are concerned about "overall funding limits." They must balance limited resources with requests to fund potentially high cost businesses ($50,000 or more). Many state agencies address this by limiting their contribution to a percentage of total funds or by establishing contribution levels. However, several policies acknowledge that, with approval of higher authorities (such as state offices), established limits may be exceeded. Two state agencies require that businesses be profitable after just one year, which may be an unreasonable expectation that may inhibit people seeking self-employment support. Most business developers acknowledge that it usually takes longer than one year for a business to be profitable.

"Follow-up" is the least addressed policy component, followed by "training." A VR self-employment policy might not address training because the agency routinely provides this service and it is mentioned in other parts of the agency's policy. Follow-up may not be included because it requires additional counselor time, financial expertise, assistance to business owners, and/or expense (i.e. consultants' fees).

Recommendations

This research leads to several policy recommendations. First, to both help consumers and to protect states' investments in businesses, policies should thoroughly address self-employment related training activities and business follow-up. Self-employment literature strongly endorses business education and ongoing evaluation as important factors in business success.

Second, the Rehabilitation Services Administration (RSA) should either define "initial stocks and supplies" or allow individual states to include their own definitions in self-employment plans. If the Rehabilitation Act is not amended to define "initial stocks and supplies" and funding levels, states should implement means tests that allow them to set limits based on consumers' personal resources.

Third, RSA should also allow state VR policies to specify the level, conditions, and amount of investment they will make in the self-employment enterprise. This latitude provides VR with capacity to link with external agencies and funding sources which ultimately may benefit the client. Additionally, individual states face drastically different economic conditions which may impact their capacity to fund larger business ventures.

For more information contact:

Nancy Arnold, Ph.D.
Research and Training Center on Disability in Rural Communities,
The University of Montana Rural Institute, 52 Corbin Hall, Missoula, MT 59812-7056
(888) 268-2743 toll-free; (406)243-5467 V/TT; (406) 243-2349 fax
email Nancy Arnold
email the Rural Institute
http://rtc.ruralinstitute.umt.edu

This research is supported by grant #H133B70017-01 from the National Institute on Disability and Rehabilitation Research, U.S. Department of Education. The opinions expressed reflect those of the authors and are not necessarily those of the Department of Education.

This factsheet was prepared by Nancy Arnold and Catherine Ipsen © RTC: Rural 2003. It is also available in large print, text and Braille formats.The Rural Facts series is edited by Diana Spas.

Questions? Would you like to receive periodic updates about our research and training activities? Do you have comments or suggestions about this site? E-mail your requests, comments and suggestions to Diana Spas or call 888-268-2743 and ask for the Information Coordinator.


	State Self-Employment Policies: A Decade of Change March 2003
Introduction In 1992, RTC: Rural researchers surveyed state Vocational Rehabilitation (VR) agencies on their self-employment policies and procedures. Forty-five VR agencies (excluding visual services agencies) responded to this initial study. In 2002, RTC: Rural researchers conducted a follow-up investigation to determine whether state self-employment policies had changed over the decade in response to several factors, including: (1) RTC: Rural's dissemination of its model policy and procedures; (2) Changes in the 1998 Reauthorization of the Rehabilitation Act acknowledging self-employment as an employment outcome; and (3) The success of VR agencies, individual practitioners, and services providers using self-employment as an outcome. Methods In 2002, researchers requested a copy of state self-employment policies and procedures from each of 82 VR departments (including visual services agencies) in the 50 states and the District of Columbia. Fifty-four agencies responded for a 65.9% response rate. Two researchers independently compared state policies and procedures with the RTC: Rural's model self-employment policy components: RTC: Rural Model Components Counselor assesses individual's business potential. Consumer develops business idea, explores business idea's feasibility, and conducts market analysis (with assistance and review by counselor or outside consultant). Consumer obtains needed education and business training. Consumer obtains technical assistance needed for business development process. Consumer develops business plan. Consumer explores and applies for resources available from other sources. Agency (or qualified individual) reviews business plan for long-term feasibility. Agency provides regular follow-up of business until case is closed. Results In 1992, 45 state agencies responded; and in 2002, 54 state agencies responded. In 1992, ten VR agencies had no written self-employment policies; in 2002 only one agency had no policy. Thirty (56%) of the current self-employment policies had been published after the 1998 Reauthorization of the Rehabilitation Act, perhaps in response to its endorsement of self-employment as a viable vocational outcome. The average 1992 state policy addressed 3.7 of the eight model policy components; in 2002, the average policy addressed 6.6 components. "Incorporating agency review of a proposed business" was the component with the greatest increase in prevalence (36% of 1992 plans; 89% of 2002 plans). This component was followed closely by "Requiring the development of the business plan," (49% of 1992 plans; 96% of 2002 plans). "Consumer obtains needed education" was the least prevalent component in 1992 and "Agency follow-up" was the least included component in 2002 (54%). Thirty-seven general or combined state agencies provided policies and procedures in both 1992 and 2002. Figure 2 reflects data for agencies participating in both 1992 and 2002 and compares the percent of programs including each model policy component. Description of Figure 2 In addition to including more model components in written state VR policies, many agencies published self-employment manuals and checklists for counselors and consumer resources such as fact sheets and planning guides. Agencies also developed services or use programs that specifically help people with disabilities develop successful businesses. Business Feasibility The most frequently used feasibility assessment methods are "the business plan" (31%) and "asking questions about the business" (20%). Less-frequently used methods include "working with a consultant to conduct a feasibility study," "conducting a market analysis," "conducting research on the proposed business," "using a checklist," and "taking business courses." Education and Technical Assistance Eight agencies (15%) specify Small Business Development Center (SBDC) or Senior Corps of Retired Executives (SCORE) training for developing a business plan and learning about specific business topics such as bookkeeping and marketing; 25 agencies (46%) specify SBDC/SCORE classes plus training activities such as school, correspondence classes, and apprenticeships. Fifty state policies (93%) require or recommend technical assistance as part of the business development process. In addition to using community services such as SBDC, SCORE, and colleges and universities, several agencies have either developed their own programs or contract for technical assistance with external sources. Business Plan Development Fifty-two agencies (96%) require the development of a business plan. Of those, 21 (40%) require that clients work with a business development consultant to develop a business plan. Thirteen agencies (24%) require a business plan and identify required topics to address. Fifteen agencies (28%) require that the consumer complete his or her own plan, but do not identify topics to address. Funding for the Business Forty-four state policies (81%) address business funding but policies are quite varied. Three agencies fund the entire business without limits and without requiring the consumer to explore external funding. Three agencies require a 10% contribution from the consumer regardless of the total amount requested. Eight agencies require external funding but do not specify a required dollar amount. Two agencies base their contribution on the consumer's ability to contribute or on the consumer's assets. Nine agencies require that the consumer apply for a loan or explore other funding sources, but appear to fund the entire business if loans are unavailable. Six agencies provide all funding for businesses under a certain amount and require consumer funding or securing loans for businesses above these amounts. The term "initial stocks and supplies" is interpreted in many ways: some states set no limits; some set monetary limits; and some set chronological limits (e.g., one month, six months, etc.). Agency Review and Follow-up Forty-five agencies (83%) review the proposed businesses in a variety of ways, including reviews by external business developers; by review committees consisting of internal and external reviewers; by in-house review specialists; or by the VR counselors, supervisors or managers. Until the case is closed, 29 agencies (54%) periodically review a business's profit/loss statements, income/expense statements, books, and tax returns. Discussion Results from this 10 year follow-up show remarkable growth in VR self-employment policies and procedures. Each agency's policy and procedures are unique, reflecting the state's fiscal constraints and its approach to self-employment. The most dramatic policy changes are that agencies (1) Recognize that it's important for consumers to develop their own business plans and (2) Provide more guidance for counselors on how to initiate and follow through on a self-employment plan. In the past, counselors often did all the work to develop businesses or were responsible for writing business plans (Arnold & Seekins, 1994). Now, counselors usually facilitate the process, and consumers develop their businesses and business plans with assistance from external business developers. Most agencies realize that professional business assistance is important, and most policies require or recommend that consumers obtain professional help. Vocational Rehabilitation funding has two components: "initial stocks and supplies" and "overall funding limits." The 1998 Reauthorization of the Rehabilitation Act authorizes VR to purchase "initial stocks and supplies" - an invaluable business startup service for people who lack the credit, capital, or collateral to purchase such items. Many agencies find the meaning of "initial" unclear. Does it refer only to the stocks and supplies a business needs to open its doors, or does it include replacing depleted stocks for the first two months, four months, six months, or first-year of business? State agency policies show a wide range of interpretation of "initial stocks and supplies." Agencies also are concerned about "overall funding limits." They must balance limited resources with requests to fund potentially high cost businesses ($50,000 or more). Many state agencies address this by limiting their contribution to a percentage of total funds or by establishing contribution levels. However, several policies acknowledge that, with approval of higher authorities (such as state offices), established limits may be exceeded. Two state agencies require that businesses be profitable after just one year, which may be an unreasonable expectation that may inhibit people seeking self-employment support. Most business developers acknowledge that it usually takes longer than one year for a business to be profitable. "Follow-up" is the least addressed policy component, followed by "training." A VR self-employment policy might not address training because the agency routinely provides this service and it is mentioned in other parts of the agency's policy. Follow-up may not be included because it requires additional counselor time, financial expertise, assistance to business owners, and/or expense (i.e. consultants' fees). Recommendations This research leads to several policy recommendations. First, to both help consumers and to protect states' investments in businesses, policies should thoroughly address self-employment related training activities and business follow-up. Self-employment literature strongly endorses business education and ongoing evaluation as important factors in business success. Second, the Rehabilitation Services Administration (RSA) should either define "initial stocks and supplies" or allow individual states to include their own definitions in self-employment plans. If the Rehabilitation Act is not amended to define "initial stocks and supplies" and funding levels, states should implement means tests that allow them to set limits based on consumers' personal resources. Third, RSA should also allow state VR policies to specify the level, conditions, and amount of investment they will make in the self-employment enterprise. This latitude provides VR with capacity to link with external agencies and funding sources which ultimately may benefit the client. Additionally, individual states face drastically different economic conditions which may impact their capacity to fund larger business ventures. For more information contact: Nancy Arnold, Ph.D. Research and Training Center on Disability in Rural Communities, The University of Montana Rural Institute, 52 Corbin Hall, Missoula, MT 59812-7056 (888) 268-2743 toll-free; (406)243-5467 V/TT; (406) 243-2349 fax email Nancy Arnold email the Rural Institute http://rtc.ruralinstitute.umt.edu This research is supported by grant #H133B70017-01 from the National Institute on Disability and Rehabilitation Research, U.S. Department of Education. The opinions expressed reflect those of the authors and are not necessarily those of the Department of Education. This factsheet was prepared by Nancy Arnold and Catherine Ipsen © RTC: Rural 2003. It is also available in large print, text and Braille formats.The Rural Facts series is edited by Diana Spas. Questions? Would you like to receive periodic updates about our research and training activities? Do you have comments or suggestions about this site? E-mail your requests, comments and suggestions to Diana Spas or call 888-268-2743 and ask for the Information Coordinator.