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18 Steps for Starting Your Business
By Linda Pinson
Out Of Your Mind ... And Into The MarketplaceCopyright © 2008 Linda Pinson
All rights reserved.
It's Time to Be Your Own Boss
You have decided that you would like to be a business owner. You want to quit working at that "nine to five" job that doesn't seem to pay well or to bring any excitement to your life. Instead, it sounds like a great idea to take the leap into entrepreneurship and be your own boss.
Why Do You Want to Own a Business?
Business ownership is often looked upon as a means of creating wealth and achieving personal freedom. Some of the most common reasons why you might choose to go into your own business are:
[check] To build a business for yourself instead of for someone else
[check] To pursue a passion (e.g. "I've always wanted to own a restaurant.")
[check] To be your own boss and master of your own time
[check] To make a living doing what really enjoy doing (woodworking, photography, writing, childcare, etc.)
[check] To capitalize on an invention
[check] To replace income from the loss of a job
[check] To create net worth (long-term capital appreciation)
Are You Are Ready to Make the Transition?
When you are contemplating business ownership, it tends to be exhilarating. However, it is common to experience uncertainty as well. Am I willing to invest the time it takes to start and run a business? Can I deal with the emotions that come with running a business? Will enough people use my services or buy my products? Will I make enough money to sustain the business and my desired lifestyle? Am I mentally prepared to give up my current salary and accept the financial uncertainties that come with running my own business? Will I be able to support my family?
In order to be successful in your new business you have to be fully committed to your vision. Instead of working eight hours a day, most new business owners work sixteen hours a day with very few days off for leisure activities. You will indeed be your own boss and the master of your time - but, that does not mean that you will be free. I have always thought that I am the toughest boss that I ever worked for.
Think about it and make sure that the timing is right to make your move from employee to business owner. Review possible threats that are likely to arise and determine how you will mitigate them. Determine what your strengths are and how you will use them to get your business up and running and on the road to profitability.
To complete your reality check, ask yourself the all-important question, "Am I ready accept the responsibilities of business ownership?" If the answer is "yes," then it is time for you to move forward in a logical way to decide on a business and to get it off the ground and running smoothly.
Match Your Skills and Interests to Your Business
Skills are the things that you are good at. Interests are the things that you like to do. When you are considering the type of business you want to start, it is generally best to find one that utilizes your skills and that captures your interest. If you are good at something, but don't like doing it, you will soon find yourself wishing that you were doing something else. Likewise, if you are interested in what you are pursuing, but you are not good at it, you are not likely to stick with it for long.
After you have identified your various skills and interests, you can then begin to identify potential businesses that satisfy both requirements. This is where the true entrepreneur can use the imaginative processing to come up with creative ideas for new and unique businesses.
You know lots about flowers and plants, but you do not like to be outdoors. Don't go into the landscaping business. However, you might think about providing and maintaining indoor plants for restaurants, professional offices, real estate brokerages, and other commercial businesses.
You are like working with pre-school children (interest) and you are trained as an elementary school teacher (skill). You might consider opening a day care center that specializes in learning activities and also offers after school care and tutoring.
You have always wanted to open a clothing store. However, you hate being indoors. Most likely, you will probably always resent being stuck inside. Think about starting some kind of a kiosk clothing business in an outdoor mall or specialize in clothing sold at outdoor sports events, such as car rallies or surfing competitions.
Look at Your Financial Situation
One of the most glaring problems that I often see with potential business owners is their failure to plan properly for the financial transition from employee to business owner. Cash flow problems can lead to unpaid bills, continuous calls from debtors, and emotional stress. Consider your financial situation before starting your business.
Consider your personal financial situation. If you plan to quit your current job and devote all of your energies to your new business, it is a great idea to set aside enough money to pay your living expenses for at least six months. If you have a spouse or other family members that work, can you live on their earnings?
New businesses frequently are not very profitable in the early stages. Prior planning can provide you with a much-needed cushion in case you cannot take any money out of your business for a period of time.
Think about start-up costs. If you are starting a new business from scratch, do you have the money you have to spend in order to get the business up and running? Think about whether you will have to rent an office, buy furniture, buy equipment, advertise, pay for permits, hire a lawyer, or number of other initial things that require spending money before you make money. Fitness centers and restaurants are examples of businesses that are required to expend significant amounts of money before they open their doors.
Look realistically at initial sales potential of the business. The opportunities for initial earnings vary greatly from business to business. For instance many service companies can be profitable from the very beginning.
If you open a consulting business and have your office in your home, your earnings are limited only by your ability to attract and service clients. Likewise, a landscape or yard maintenance business can earn early profits if it has the right equipment, skilled labor, and customers. On the other hand, most product businesses, cannot earn income until the products are developed or purchased, advertised, and sold.
If you need a funding, be aware of lender requirements. Get rid of the idea that business capital is easy to get. It is a common misconception that the U.S. Small Business Administration (SBA) and other government entities are waiting in the wings to dish out free money to entrepreneurs with great ideas. Nothing could be further from the truth. What is commonly referred to as an "SBA Loan" is really a loan from a traditional lending institution (bank), but guaranteed up to a certain percentage by the SBA to reduce the bank's risk factor.
In addition to asking for a solid business plan, the bank will require that you have a high credit rating (FICO score), cash to invest in the business, and personal assets (equity) that can be captured in case you default on the loan.
Find a Mentor
Before you go into business, it would be great to align yourself with someone with experience in your industry and experience in business management. Working with a mentor can prepare you for the travels that lie ahead in your business journey by sharing knowledge and expertise. The relationship with your mentor will help prepare you for success and protect you from failure.
If you are one of the fortunate few, you will have a close friend or business associate who has the necessary skills and would be willing to advise you. If not, business mentors can be generally be found through your local chamber of commerce and various business organizations.
Provided below are some resources:
Service Corps Of Retired Executives (SCORE) - A national organization sponsored by the Small Business Administration (SBA) of volunteer business executives who provide free counseling, workshops and seminars to prospective and existing small business people. Local SCORE chapters consist of retired professionals who are available to give free business advice. (www.score.org)
Small Business Development Centers (SBDCs) - Sponsored by the SBA in partnership with state and local governments, the educational community and the private sector. They provide assistance, counseling and training to prospective and existing business people.
Small Business Institutes (SBIs) - Organized through the SBA on more than 500 college campuses around the nation. The institutes provide counseling by students and faculty to small business clients.
Chambers of Commerce - Local branches of your chamber of commerce can be a great resource for mentors. An example is the Greater Dallas Hispanic Chamber of Commerce. (www.gdhcc.com)
MicroMentors - MicroMentors help entrepreneurs grow their businesses through mentoring relationships with experienced business professionals. (www.micromentor.org)
In this chapter, you were encouraged to evaluate your own readiness to make the transition from employee to business owner. By now, you should also better understand how evaluate business opportunities that match your skills and interests as well as your personal financial situation.
Chapter 2 will focus on the choices you will have as to whether you want to start a new business, buy an existing business, or purchase a franchise. You will also find some information to think about if you are toying with the idea of starting a non-profit business or you are wondering how to capitalize on a new product or invention.CHAPTER 2
Think About Ways to Start a Business
You have decided that entrepreneurship is for you and are ready to start a business. The next decision you will have to make is what kind of a business you will start. There are many routes that can be taken toward owning a business. For instance, you can:
[check] Start your own business
[check] Buy an existing business
[check] Buy a franchise
[check] Invent a product and take it to market
[check] Become a social entrepreneur
Start Your Own Business
Having decided to become a business owner, you now need to determine what business you will start. To help you in your decision making, ask yourself these questions. What kind of things do I like to do? Can my hobby or interests be turned into a commercially viable venture? Is there a need in the marketplace that I can fill? The last question will also help you determine if there is a niche in the marketplace that your new business will fit into.
Before embarking on your venture, do some research to determine who your competitors will be. Look at their strengths and weaknesses. Then think about how your business will be different and whether or not you can reasonably expect to gain that all important competitive edge in your industry and specifically within your target market.
If you are thinking of starting a business, there are several questions that you should ask yourself. The table below will guide you through some of those things.
Buy an Existing Business
If you decide to buy an existing business, the first thing you will want to do is determine the type of business you want to own. This decision will be based on your skills, qualifications, interests, and overall abilities. In making this decision, find a business that will give you the opportunity to use your skills effectively.
How Do You Find a Business to Buy?
When you have decided on the type of business that you are best suited for, the next step is to search for a business. There are several considerations you will have to keep in mind as you look for a business to buy. These include location and how much you can afford to spend (budget). Now that you have an idea about where you want to look for a business and how much you have to spend, you can start looking.
The Internet is a great place for you to start looking. You can simply start by going to any search engine and typing "businesses for sale" in the search box. Be more specific by putting your location. For example, if you are looking for a business in Phoenix, Arizona, type "businesses for sale in Phoenix, Arizona." Conducting the search on your own may prove to be time consuming and may not yield the best results. If so, you might want to use a business broker. You may be responsible for some business broker expenses. Doing you own searching on the Internet will be free.
Business brokers help people buy or sell a business and have the resources to help you reach your goals. You can tell them the type of business you are would like to buy and they can search within their database to see if one is available. If not, they can search for one that meets your criteria, saving you the time. Business brokers typically charge the seller a percentage of the final sale price, payable at the close of the deal. Be sure to ask a broker up front if there are any fees or expenses you will be responsible for as the buyer and perform due diligence before selecting a business broker. Get references and check to see if he or she is a member of a local or national business broker association.
Another free resource is your local newspaper. The Business Opportunities section will feature advertisements with business for sale. The Sunday paper has a larger listing in that section. You can also use the newspaper and the Internet to place an ad stating the specific type of business you are looking to purchase.
You can also search for a business to buy by attending various networking events and using word of mouth as a starting point. Start by attending local civic and business organization meetings as well as events sponsored by your local Chamber of Commerce. There are also industry specific organizations or associations that you can visit. Networking with people that are in a specific industry will enable you to learn more about available opportunities.
Due Diligence Required
Regardless of the route you choose to take in your search, there are some key things you will need to do once you have found a business you are interested in buying. The first is doing comprehensive due diligence. A business may appear to be successful and show a profit. However, that does not mean it has no problems. You will want to find out everything about the business including what is owned, borrowed, leased, and owed. You do not want to get into a situation that leaves you with a stack of bills, unpaid vendors, rent due, and other outstanding debt.
The second thing you will want to know is the value of the business. You will have to conduct a detailed financial analysis and valuation to determine the appropriate price to pay. As part of your analysis, you will review profit and loss statements, balance sheets, key assets, contingent and actual liabilities, and cash flow statements.
With your due diligence and financial analysis complete, you are ready to move forward with the acquisition of the business.
Buy a Franchise
Buying a franchise is one of the most popular ways to start a business. By acquiring a franchise, you open yourself up to the possibility of selling products and/or services that have instant name recognition. You will also benefit from the training you will receive at the beginning as well as the ongoing support to help you become successful. Like any business venture, there are costs associated with purchasing a franchise. You may pay some or all of the following fees to the franchise: initial franchise fee, ongoing royalty payments, and advertising fees. Other start up costs will include rent, build-out, equipment, inventory, licenses, and insurance.
There are two common ways for participating in a franchise program.
The classic method is to buy a new franchise. This means you will have to find a location and do the build out yourself. This is a start-up situation and you dive into the new business as an owner/operator. Many successful entrepreneurs have built multi-unit empires this way. Newer franchises usually provide this route for business ownership. During the process, you will have the assistance of the franchisor.
The other way is to buy an existing franchise. Several types of franchises are available in various industries. To find a franchise of your choice, you can attend franchise trade shows with the goal of visiting exhibitors in an industry that has a strong appeal to you. While listening to the presentations given by the exhibitors, be sure to get answers to some of the following questions. How long has the franchisor been around? How many franchise units exist in your local area and where are they located? What is the initial franchise fee and are there additional start-up costs? Are there ongoing royalty payments and if so, how much are they? What assistance is provided at the beginning and on a continuing basis? What controls are imposed by the franchisor?
Excerpted from 18 Steps for Starting Your Business by Linda Pinson. Copyright © 2008 Linda Pinson. Excerpted by permission of Out Of Your Mind ... And Into The Marketplace.
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