Is Entrepreneurship for You?
In business, there are no guarantees. There is simply no way to eliminate all the risks associated with starting a small business—but you can improve your chances of success with good planning, preparation, and insight. Start by evaluating your strengths and weaknesses as a potential owner and manager of a small business. Carefully consider each of the following questions:
Are you a self-starter?
It will be entirely up to you to develop projects, organize your time, and follow through on details.
How well do you get along with different personalities?
Business owners need to develop working relationships with a variety of people including customers, vendors, staff, bankers, and professionals such as lawyers, accountants or consultants. Can you deal with a demanding client, an unreliable vendor, or a cranky receptionist if your business interests demand it?
How are you at making decisions?
Small business owners are required to make decisions constantly—often quickly, independently, and under pressure.
Do you have the physical and emotional stamina to run a business?
Business ownership can be exciting, but it’s also a lot of work. Can you face six or seven 12-hour work days every week?
How well do you plan and organize?
Research indicates that poor planning is responsible for most business failures. Good organization of financials, inventory, schedules, and production can help you avoid many pitfalls.
Is your drive strong enough?
Running a business can wear you down emotionally. Some business owners burn out quickly from having to carry all the responsibility for the success of their business on their own shoulders. Strong motivation will help you survive slowdowns and periods of burnout.
How will the business affect your family?
The first few years of business start-up can be hard on family life. It’s important for family members to know what to expect and for you to be able to trust that they will support you during this time. There also may be financial difficulties until the business becomes profitable, which could take months or years. You may have to adjust to a lower standard of living or put family assets at risk in the short-term.
Startup Basics—First Steps
Starting and managing a business takes motivation and talent. It also takes research and planning. Although initial mistakes are not always fatal, it takes extra skill, discipline, and hard work to regain the advantage.
Take time beforehand to explore and evaluate your business and personal goals, then use this information to build a comprehensive and thoughtful business plan that will help you reach these goals.
Developing a business plan will force you to think through some important issues that you may not otherwise consider. Your plan will become a valuable tool as you set out to raise money for your business, and it will provide milestones to gauge your success.
Before starting out, list your reasons for wanting to go into business. Some of the most common reasons for starting a business are:
Full use of personal skills and knowledge
Next determine what business is right for you. Ask yourself these questions:
What do I like to do with my time?
What technical skills have I learned or developed?
What do others say I am good at?
Will I have the support of my family?
How much time do I have to run a successful business?
Do I have any hobbies or interests that are marketable?
Identify your business niche. Research and answer these questions:
What business am I interested in starting?
What services or products will I sell?
What is my competition?
What is my business’s advantage over existing firms?
Can I deliver a better quality service?
Can I create a demand for my business?
The final step before developing your plan is the pre-business checklist. You should answer these questions:
What skills and experience do I bring to the business?
What legal structure will I use?
How will my company’s business records be maintained?
What insurance coverage will be needed?
What equipment or supplies will I need?
How will I compensate myself?
What are my resources?
What financing will I need?
Where will my business be located?
What will I name my business?
Your answers will help you create a focused, well-research business plan that will serve as a blueprint for business operations, management, and capitulation. SBA offers a tutorial on preparing a solid plan.
Once you have completed your business plan, review it with a friend or business associate. When you feel comfortable with the content and structure, review and discuss it with your banker. The business plan is a flexible document that should change as your business grows.
Types of Business Organizations
When organizing a new business, one of the most important decision to be made is choosing the structure of a business. Factors influencing your decision about your business organization include:
Type of business operation
Number of employees
Tax advantages or disadvantages
Length of business operation
Types of Businesses
This is the easiest and least costly way of starting a business. A sole proprietorship can be formed by finding a location and opening the door for business. There are likely to be fees to obtain business name registration, a fictitious name certificate and other necessary licenses. Attorney’s fees for starting the business will be less than the other business forms because less preparation of documents is required and the owner has absolute authority over all business decisions.
There are several types of partnerships. The two most common types are general and limited partnership. A general partnership can be formed simply by an oral agreement between two or more persons, but a legal partnership agreement drawn up by an attorney is highly recommended. Legal fees for drawing up a partnership agreement could be helpful in solving any disputes. However, partners are responsible for the other partner’s business actions as well as their own.
A Partnership Agreement should include the following:
Type of business.
Amount of equity invested by each partner
Division of profit or loss
Distribution of assets upon dissolution
Duration of partnership
Provisions for changes or dissolving the partnership
Dispute settlement clause
Restrictions of authority and expenditures
Settlement in case of death or incapacitation.
A business may incorporate without an attorney, but legal advice is highly recommended. The corporate structure is usually the most complex and more costly to organize than the other two business formations. Control depends on stock ownership. Persons with the largest stock ownership, not the total number of shareholders, control the corporation. With control of stock shares or 51 percent of stock, a person or group is able to make policy decisions. Control is exercised through regular board of directors’ meeting and annual stockholders’ meetings. Records must be kept to document decisions made by the board of directors. Small, closely held corporations can operate more informally, but record-keeping cannot be eliminated entirely. Officers of a corporation can be liable to stockholders for improper actions. Liability is generally limited to stock ownership, except where fraud is involved. You may want to incorporate as a “C” or “S” corporation.
The following outline of a typical business plan can serve as a guide. You can adapt it to your specific business. Breaking down the plan into several components helps make drafting it a more management task.
Give a detailed description of the business and its goals.
Discuss the ownership of the business and the legal structure.
List the skills and experience you bring to the business.
Discuss the advantages you and your business have over your competitors.
Discuss the products/services offered.
Identify the customer demand for your product/service.
Identify your market, its size and locations.
Explain how your product/service will be advertised and marketed.
Explain the pricing strategy.
Explain your source and the amount of initial equity capital .
Develop a monthly operating budget for the first year.
Develop an expected return on investment and monthly cash flow for the first year.
Provide projected income statements and balance sheets for a two-year period.
Discuss your break-even point.
Explain your personal balance sheet and method of compensation.
Discuss who will maintain your accounting records and how they will be kept.
Provide “what if” statements that address alternative approaches to any problem that may develop.
Explain how the business will be managed on a day-to-day basis.
Discuss hiring and personnel procedures.
Discuss insurance, lease or rent agreements, and issues pertinent to your business.
Account for the equipment necessary to produce your products or services.
Account for production and delivery of products and services.
Summarize your business goals and objectives and express your commitment to the success of your business.
Once you have completed your business plan, review it with a friend or business associate or a SCORE or Small Business Development Center (SBDC) counselor.
When you feel comfortable with the content and structure make an appointment to review and discuss it with your lender. The business plan is a flexible document that should change as your business grows.
State Director’s Office
401 East Chase Street, Suite 100
Pensacola, FL 32502
Assistance in finding a Small Business Development Center nearest you.
The National Entrepreneur Center
315 East Robinson Street
Orlando, FL 32801
This material excerpted with permission from http://www.sba.gov/sbdc/sbdcnear.html