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Business Startups

5 Posts authored by: akgold

Finding the capital you need to get your business started may be easier than you think.
By Max Berry

 

You've come up with a business idea; you've done the necessary research and written a sure-fire business plan. Now what's the next step? Finding the money to turn that business plan into reality. There is a wide array of potential sources of funding available to entrepreneurs. Each comes with advantages and downsides.

 

All in the Family
Friends and family members are often the first place a budding business owner turns to when looking for money to start his or her company. “Your family is a great starting place for a loan,” says Skip Honigstein, chairman of the Orlando chapter of the Service Corps of Retired Executives (SCORE). “If you have a strong idea, the first people you are most likely to persuade are those who know you the best.” Honigstein notes that family lending is particular common among many immigrant communities, in which families often work together to launch new businesses. “You’re also likely to get much more favorable repayment terms from close relatives than you would from any bank,” he adds. If your family can’t fund your fledgling company directly, they may still be able to help obtain funding from a bank or other financial institution by guaranteeing a loan. Ted Waitt co-founded Gateway Computer in 1985 with a $10,000 loan guaranteed by his grandmother. Today Gateway has revenues of almost $4 billion a year and employs over 1,600 people.

 

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Of course seeking money from family members and close friends has its risks as well. "Money issues can poison what were once close relationships," says business consultant C. Davis Fogg. Being in debt to the bank is one thing, feeling indebted to a family member or friend is a much more personal experience. “If your business runs into trouble and is slow to repay a loan—or unable to repay altogether—that can create serious problems with the family members who gave you the money. Remember, you don't have to spend Thanksgiving with your bank.”

 

"If your business runs into trouble and is slow to repay a loan—or unable to repay altogether—that can create serious problems with the family members who gave you the money. Remember, you don't have to spend Thanksgiving with your bank."

 

Play Your Cards Right
Increasingly, budding entrepreneurs are turning to the easiest form of borrowing around—credit cards. "Many people use their personal credit cards to start a business,” Honigstein says. “Credit cards offer a quick and convenient way to purchase needed assets while spreading out the costs over time.” Nevertheless, like any other borrowing instrument, credit cards demand careful use. “You need to watch the balances and make certain not to take on more debt than you can handle." Interest rates on credit cards often rise after certain debt levels have been reached, as well as in the event of a late or missed payment, which can cause your debt to increase rapidly.

 

“There are genuine advantages to using credit cards wisely,” says Gerri Detweiler, author of The Ultimate Credit Handbook. “Credit cards also provide convenient billing statements that allow you to track expenses,” she adds. However, using personal credit cards can negate that advantage by mixing your personal finances too closely with those of your business. “If you are late with a payment or run too high a balance on a personal card that you are using to run your business, your credit rating will suffer.” That can hurt you in the long term if you need to borrow money for non-business related reasons—car loans and home mortgages, for instance. Detweiler advises trying to separate your business and personal finances as soon as possible.

 

“Most banks and other lenders are working hard to recruit new small business customers,” she says. “So as soon as you file the forms with the state to open your business, you may find yourself deluged with business credit card offers.” Detweiler says that business credit cards will help insulate your personal credit rating from any trouble your business experiences. (To find and compare business credit card rates, try searching my3cents.com or bankrate.com.) Many business credit cards offer some form of rewards program for specific purchases that can result in considerable savings on items like office supplies. “You should definitely take advantage of rewards programs,” Detweiler says. She adds that having more than one business credit card is often useful because the rewards programs and rates and fees vary significantly between different cards.

 

The Traditional Approach
Beyond family and credit cards, there is still the traditional bank loan. Many first time entrepreneurs are wary of approaching a bank with plans for a new business, assuming that they will be rejected, but today most banks are eagerly looking for small business accounts. “Banks are going out of their way to find new businesses,” says SCORE’s Honigstein. “But you will still have to demonstrate to them that your idea is workable and that you are a good risk.” That means providing them with a well-conceived, well-researched, clearly written business plan. “Your presentation to the bank needs to be professional in every way,” Honigstein advises.

 

Among other things, banks will scrutinize your financial history, including your credit record. So make certain you have resolved any outstanding issues before applying for a loan. The Small Business Administration (SBA) has a program to assist entrepreneurs with the process of obtaining a new loan and works with participating financial institutions to provide small business loans for startups. You can learn more about the SBA small business loan program at sba.gov.

 

Max Berry is an Associate Editor/Writer for Business 24/7 Magazine.

A well-executed business plan is a critical first step for every new business.
By Max Berry

 

You think you’re ready. You know what sort of business you want to start. You’ve written down your idea, narrowed its focus, and done the basic research. Now, what’s the next step? Turn that idea and research into a formal business plan.

 

Writing a detailed business plan is an essential step toward getting your business off the ground. Not only will the business plan help guide you through the challenges and complexities of launching your business, but it will also prove essential if you decide to apply for a loan to fund the business. “Banks look for signs that you know what you are doing and that you are really committed to your business idea,” says Martin Lehman, counselor at the New York chapter of the Service Corps of Retired Professionals (SCORE). “They need to see that you’ve worked through the details of your idea in a systematic way and have given real thought to the problems you may face.” The existence of a well thought-out, clearly written, well researched and realistic business plan will prove critical to demonstrating your seriousness and professionalism to any financial institution you decide to approach.

 

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So what goes in the business plan? Business plans have a general layout. The plan should open with an executive summary that states in a few sentences, or a short paragraph, what the business will do and why you are the person—with the right experience, education, etc.—to make it happen.

 

Research, Research
After the executive summary you will want to lay out your market research and analysis, demonstrating that there exists an adequate pool of consumers willing to purchase your product or service. You can find precise data from government publications, industry publications, trade groups, and local chambers of commerce. You should also define the extent of the competition your business will face within the area it operates and how your business will stand apart from that competition. “You need to be realistic when assessing how much competition your new business is likely to face,” says business consultant C. Davis Fogg. “Too many startups don’t realize how difficult it is to attract customers—especially if there are well-established similar-type businesses already in the area.”

 

A Solid Structure
Describe your new business’s structure. How will your business deliver its products or services? Who will do what? Where will your operations be located? It may make sense to create charts that lay out the company’s critical processes, and executive decision-making responsibilities. “It’s a good idea to answer as many management questions as possible ahead of time,” advises Lehman. “If you have a partnership, for instance, who gets the final word on difficult decisions? The more detail the better.” Be sure to define the company’s ownership—will you own it completely, or are there co-owners or partners in the business? If you already have a team of key personnel in place, include their resumes or biographies and descriptions of their roles in the business.

 

Be Descriptive
Be sure to describe your product or service as well as your marketing plans in detail. “Again, detail is key,” says Lehman. “Don’t assume that a simple description like ‘coffee shop’ or ‘retail clothes store’ is enough.” Explain exactly what your business sells with as much specificity as possible and how your product or service distinguishes itself from the competition.

 

The Bottom Line
Finally, you need to explain the financial workings of your business. How much money will it cost to produce your product or service, rent a location (if applicable), pay any employees (including yourself), market the business, and purchase needed supplies? “If you are just launching your business,” Lehman says, “this can be tricky, since you don’t have an established track record to rely on.” So you will have to project your likely expenses and revenues based on your research. “And this can be the trickiest part of all,” Lehman warns, “because there’s a huge temptation to put everything in the best-possible-case-scenario kind of thinking.” Too many fledgling businesses, he says, are too optimistic when it comes to forecasting just how much money they will need to start the business and keep it running, and even more optimistic when assuming how many customers they will attract in their early days. “Sometimes its better to be a little pessimistic,” he says. “In any range of estimates, look at the less favorable ones.” In short, be conservative—assume expenses will be higher and initial revenues lower. Calculate a break-even forecast that shows the sales figure you will need to achieve just to break even, and then make sure your market research backs up the idea that you will get at least that many customers.”

 

For more information, including templates and guidelines for writing a business plan:
U.S. Chamber of Commerce (www.uschamber.com)
Small Business Administration (www.sba.gov)
SCORE (www.score.org).

 

Offline Resources:
Business Plans for Dummies by Paul Tiffany and Steven Peterson
The Complete Book of Business Plans by Joseph A. Covello and Brian J. Hazelgren
Both are available from online vendors or at many public libraries.

 

Max Berry is an Associate Editor/Writer for Business 24/7 Magazine.

 

Be sure to look for Part III of this article, which will examine how to raise money to start your business and how to market your products or services.

Home-based businesses are fast becoming a popular way to operate your small company, while reducing expensive start-up costs such as leasing space, lease hold improvements, utility and phone deposits and major office equipment. Thousands of people across the country are finding that working from home provides them with the advantages of earning an income with the flexibility to work when it is best for them and take care of family and other responsibilities that often arise throughout the work day. However, before starting your home-based business, consider the following advice:

Determine local and state requirements for licensing and zoning regulations. Be sure to check with your local zoning office to find out how the zoning regulations in your area may affect your business plans. Determine if your business requires any licenses and file the necessary forms.

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Rent a post office box and use that address on your promotional mail and stationery, doing this will make it less obvious that you are working from home. The professional image you portray is very important to your clientele.

Install a phone line in your home dedicated to your business.

Use an answering machine for incoming business calls.

Organize your work space with great care. Make sure that you have sufficient space to meet your needs.

When scheduling appointments with clients, consider meeting at your client's office or renting a conference room to maintain a professional image.

Establish contacts with your competitors and join associations pertinent to your business. Have your clients suggest possible new clients and ask if they will recommend you.

Keep excellent records of entertainment and travel expenses. The Internal Revenue Service (IRS) tends to audit home-based businesses more frequently—especially when they are writing off a variety of expenses, including the percentage of the mortgage or rent for your office space. There are several good record keepers such as Day Timer®, Franklin Quest® and Day Planner that will help you keep track of your expenses. Your accountant, a CPA is recommended, can advise you on deductions you can take and records you must keep for the IRS.

And above all, put some of your earnings into a savings account for those times when your business is in a slump . . . and it will happen.

Discipline yourself. You must be a self-starter and follow a routine, just as if you were working for any other business. In many cases, you are the only person you can rely on to get the job done. Unless it's an emergency, do not baby-sit or chat with your neighbors.

Brought to you by SCORE "Counselors to America's Small Business"
www.score.org

Before you consider starting your own business, be aware of the three most common mistakes to avoid
By Max Berry

 

When Doug Malone tried to start his first home renovation business in Boston, Massachusetts, several years back he quickly discovered that the market was already so saturated with general contractors that he had trouble attracting customers. “I just assumed that because I had a lot of experience working in home renovation and that it was something so many people were interested in, I wouldn’t have any problems.” After barely scraping by for two years, Malone relocated to another town further outside Boston with fewer contractors and tailored his business to specialize in remodeling kitchens. His new business flourished. “If I’d done my homework the first time, I’d have known that there was too much competition where I’d been living, and that I needed more focus,” Malone says.

 

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Mistake No. 1: Little or No Research
Malone’s problem illustrates a common mistake new entrepreneurs frequently make when trying to start their businesses: failure to properly research their idea. All too often, fledgling business owners are so impressed with the brainstorm they had for their business that they neglect to ask fundamental questions regarding both their business concept and the marketplace where they plan to locate. Will my products/services appeal to enough people? Are there any similar businesses operating in the area? Are the local economic and cultural demographics likely to support the sort of business I’m contemplating? Has anyone tried to start such a business there before?

 

Learning about the type of business you are planning to start is critical, says Martin Lehman, counselor at the New York Chapter of the Service Corps of Retired Executives (SCORE), which offers advice to small business owners. “Have you ever worked in the field? If you plan to open a store, for instance, have you ever worked in retail? Before you open your own apparel store, you should probably take a job at another clothing store to see how a store like that is run,” Lehman advises. Getting hands-on experience is critical for making realistic judgments about the viability of your idea and how much getting it running will cost. “Write up a business plan,” Lehman says, “and be as specific as possible.”

 

Mistake No. 2: Not Asking for Help
Gathering enough information to adequately plan for your new business may require more than just looking through phonebooks, business directories, chamber of commerce reports, and studying the neighborhood. You may have to consult experienced business people who can help you navigate the often complicated and hazardous challenges of your company’s earliest days. Unfortunately, that’s another mistake new small business owners often make—failing to seek help when they need it. Many entrepreneurs are willing to consult family and friends, most of whom have no experience building a business, but are reluctant to approach a professional organization or consultant who has experience truly relevant to the entrepreneur’s needs. Organizations like the Small Business Administration (sba.gov), or SCORE (score.org) offer considerable resources and counseling to would-be small business owners and can help you research and develop your business plan, as well as providing useful advice once you have the business up and running. Also check with your local chamber of commerce for any small business advocacy organizations in your area.

 

Mistake No. 3: Being Unrealistic About Time and Money
Perhaps the biggest mistake entrepreneurs make is underestimating the time and cost involved in launching a new business. Even though technology has made it possible for small businesses to accomplish more for less money, building a business still requires an ongoing financial investment. Moreover, it requires time—a lot of it. Many would-be entrepreneurs try to start their businesses while still holding down a full time job, and when they see the costs and time demands escalate, they throw in the towel rather than endanger their savings or career. Computer industry observer and author Paul Graham lists this as one common problem in his book 18 Mistakes that Kill Startups. Graham argues that many entrepreneurs secretly lack confidence in their new business effort and balk at the idea of spending too much time or money on it. “Most startups fail because they don’t make something people want, and the reason most don’t is that they don't try hard enough,” Graham says. “The biggest mistake you can make is to not try hard enough.”

 

Max Berry is an Associate Editor/Writer for Business 24/7 Magazine.

akgold

Getting Started: Part I

Posted by akgold Jul 20, 2007

Be sure to do all your homework before you take the plunge and start your own business.
By Max Berry.

 

So you want to start your own business? Maybe you have an idea you think is so good, you believe it will be a sure-fire hit. Or perhaps you are simply sick of working for someone else and just want to strike out on your own. The first step in founding a business is to define exactly what your new business will do, in as specific terms as possible.

 

If you don’t have a specific idea for a business of your own, you might want to consider buying a franchise—that is, opening an outlet of an existing successful business. If you have your own idea for a business, the first thing you should do is to write that idea down on paper. You can start by writing down a general idea, and then develop it, narrowing its focus. “Too often,” says management consultant C. Davis Fogg, “people have too vague an idea about what they want to do. Just saying ‘I want to open a store,’ or ‘I want to build computers’ isn’t enough. A small business can’t be General Motors—it needs a tight focus in order to distinguish itself from the competition.”

 

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Putting your idea on paper makes it easier to focus on the details. “There is no substitute for writing it down,” say Martin Lehman, counselor at the Service Corps for Retired Executives (score.org), which helps small business owners get their businesses off the ground. “Write down your idea, and then break it down to the smallest elements: Who exactly will be your customers? What products or services will you offer?” Be specific, Lehman advises. Write an exact description of the products or services and to whom they would appeal. “Don’t just assume ‘people’ will want whatever your business is selling—try to figure out what type of people, what age, income, gender. You need to know who your business appeals to before you can judge how it will do in the market.”

 

Understanding the specifics of your idea is the most important starting point for launching your business. Once you know exactly what you want your business to do, you can begin to research the mechanics of your idea. Where should you locate the business? In what geographic market will your business function? What is the competition? Is there enough consumer appetite for your products or services to keep your new business going? Has anyone else opened businesses similar to yours in the area and what happened to them? What will it cost to procure the equipment or supplies you will need? This applies to franchise operations as well. Franchises generally offer fairly specific information about costs and often have rules regarding location, advertising, and the décor of franchise outlets. Still, whether a particular franchise is a good fit for a given area and for you is something you can only determine through dedicated research.

 

Your research might include visiting similar businesses, or even working for one in order to gain experience in that business, if you’ve never worked in a similar field. This is particularly true in the case of a franchise. “Seeing how a particular business operates on a day-to-day basis is crucial to figuring out if you actually want to run one of your own,” says Fogg.

 

If you have never run a business before, or have little experience in the type of business you wish to start, you should seek out people who have and talk to them about their experiences. Their advice can alert you to difficulties you may not have anticipated and point to possible solutions.

 

“Before I opened my first retail store, I went to several possible locations and stood outside them all day long, just watching who passed by,” Lehman says. “That way I could see what sort of people would be walking past the store on a regular basis, and then I chose the location with the most people I thought likely to buy what was in my store.”

 

As you progress with your research, you can begin to create a detailed business plan. Your business plan will assemble all the information you gathered during your research and translate that data into a clearly stated outline of your business.

 

Max Berry is an Associate Editor/Writer for Business 24/7 Magazine.

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