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About ... Starting A Business This
Life AdviceSM pamphlet about Starting A Business was produced by the
MetLife Consumer Education Center and co- sponsored by the U.S. Small
Business Administration. Editorial services provided by Meredith Custom
Publishing. Although most people
head off to work for someone else every day of their careers, some march
to the beat of a different drummer by owning and operating their own
businesses. Are you ready to join them? Entrepreneurs' Top
10 Getting a new
venture up and running takes business skills and personality traits that
aren't all that common. If you are considering starting your own business,
take a moment to ask yourself the following questions: YES NO ___ ___ Do you have
organizing ability, personal drive and leadership qualities? Although there are
no guarantees, if you answered yes to a majority of the preceding
questions, you may have what it takes to be successful in starting your
own business. If you really don't see yourself here, don't despair. You're
now aware of the kinds of skills and traits you need to cultivate in order
to prepare yourself. You should, however, carefully rethink your plans.
Every new business faces difficulties. You want to be sure you're up to
the task. Getting Started The right mind-set
is just the beginning. Running a business also takes a sharp business
sense. Knowing how to take advantage of market conditions and developing
strategies to get through the tough times will help turn your great idea
into a successful business. First, you'll need
to develop a business plan. It will be the road map you'll use to
establish and guide your business. Start by defining your idea in business
terms. This is not a time to focus only on the positive. You need to take
a hard, critical look at your plan and all its components. Ask every
question you can think of, and be sure you come up with satisfactory
answers. * What type of
business do you want to own? Will it be retail, service or manufacturing? * Who's the
competition? Is the community large enough to support another similar
business? Head to the local chamber of commerce for details. * Where will you
locate your business? Is there a similar business nearby? Get information
on the community's plans for business growth, such as shopping malls and
business park expansion. * Will you be able
to find enough qualified people to employ? * Will you buy,
lease or build space for your business? Buying space is costly. For that
reason, it's usually wise to rent at first in case your plans don't work
out. * How will you
identify customers for your product or service? Look at population
figures-current and projected. * How will you sell
to potential customers or clients? Find out not only if
your prospective customers really are viable, but also where your product
fits in the marketplace. Talk to your intended suppliers and, if possible,
your intended customers. Also do some research at the library and through
trade associations. Contact the Small Business Administration (SBA). Your
goal here is to get as much information in measurable form as you can.
These facts and figures can-and should-be used to make solid projections
for your business. Be prepared to
revise your business plan if the information you gather doesn't add up to
a strong possibility of success, or make discreet inquiries about the
availability of an existing business. This is no time to
go it alone. Find and consult qualified professionals-real estate agents,
lawyers, accountants, public relations experts and consultants-to help you
make the best decisions. Ask other local business owners for referrals, or
check the Yellow Pages. Even if your dream business is small and you have
a great deal of experience in that particular line of work, don't expect
to know all there is about running a business. Good advice may be the
difference between success and failure. The Capital Idea Securing adequate
financing is a primary concern for most new businesses. Most people don't
personally possess all the resources it takes to get a business up and
running, but as a business owner you'll need to invest some of your own
money. Putting your funds into a business venture helps prove your
commitment to potential investors or other sources of financing. Those sources
include banks, the Small Business Administration (SBA) and private
individuals. Be aware that many banks avoid new business loans as being
too risky even when money is not tight. The SBA is usually eager to help
new enterprises, but competition is keen for the SBA's limited loan
guaranty support. Before applying for financing, you need to carefully
prepare a thorough, well-thought-out loan proposal. Write up detailed
figures on the capital needed, and be sure to include a salary for
yourself and sufficient funds to cover start-up costs. A bank or SBA
representative will review your business plan to be sure it's solid. Once
you obtain a loan, you'll probably have to provide updated financial
statements on a regular basis. As long as your business is profitable and
you're making loan payments on time, you'll probably have minimum contact
with the bank or SBA. Short-term loans may require closer bank monitoring.
You may consider
seeking private investors who wish to have an equity stake in your
business. Relatives or friends may be potential investors. Keep in mind,
however, that these people may, understandably, expect to have a say in
how the business is run. Legal Formations For tax and legal
reasons, you'll need to decide what form your business will take.
Generally, all businesses fall into one of these broad categories: sole
proprietorship, partnership, corporation, S corporation and limited
liability corporation. Your choice of business form will affect your
exposure to personal liability, how you draw profits and pay taxes, your
ability to raise capital and how you run the business. Here's where
professional advisors play a key role. Consult with an attorney and an
accountant before you decide what form to use for your new business. They
can advise you on tax advantages and which form offers you the best
protection of personal assets. A Sole
Proprietorship is the quickest, easiest way to start a business. Simply
check with a knowledgeable attorney about any licensing or legal
requirements and you're in business. In a sole proprietorship, profits and
losses are simply included on your individual tax returns. On the
downside, if someone sues your business, they may be able to sue you
personally, and your personal assets are subject to those claims. A Partnership is an
association of two or more people working as co-owners of a business with
the intent of making a profit. As with a sole proprietorship, the
trademark certificate filed with the county clerk gets the business
rolling and the individuals are personally liable for the business. The
involvement of two or more people in the business, however, generally
increases the complexity and the amount of paperwork. Also, general
partners can share unlimited liability, and each is usually responsible
for the acts of the other. A Corporation is a
legal entity that functions somewhat like an individual, legally and for
tax purposes. Liabilities are held by the corporation, minimizing the
personal liability for owners. The corporation operates as a business and
can be owned wholly or partially based on registered certificates called
stock. To set up a corporation, you must file an application for a legal
name, pay a corporate franchise fee to the state in which you file,
appoint a board of directors and corporate officers, and keep minutes of
periodic meetings of the board. There's a unique
type of corporation-called an S Corporation- that provides the advantages
of a corporation but, unlike a corporation, is treated for income tax
purposed as a flow through entity. Income is reported individually by the
owners or stockholders on their personal income tax returns. Also, the
owners may deduct the corporation's losses against other sources of
income. If your new business will have fewer than 35 stockholders, you may
want to talk with your accountant and attorney about this option. Another alternative
is a limited liability corporation, in which income and income tax are
distributed among partners, but the partners are not personally liable for
debts. This is a brand new legal form of business. If you are interested
in setting up such a corporation, be sure to consult a knowledgeable
attorney. Down to Business You've got your
business pretty well defined, you know what form it's going to take and
you know where you're going to locate. Now it's time to get down to the
business of running your business. Here are some of the major concerns
you'll need to address as you get under way: Marketing. Identify
your potential customers-they're your target market. Then identify what is
unique about your product or service. Develop a strategy for telling your
target market about your product or service, and that's the basis of your
marketing plan. Pricing. The amount
charged for a product must cover all costs and return a profit. Many small
business owners fail to consider all the variables of producing their
products in a competitive manner, so they either fail to generate a profit
or charge more than the market will bear. The three main components of
price are material, labor and overhead costs. Do a complete cost analysis
and set a price that falls in line with your marketing strategy. Supply. Identify
suppliers of the materials you will need to provide your product or
service. Production.
Determine the best, most efficient way to make your product or offer your
service. Distribution. Figure
out the fastest, least expensive way to get your product or service to
your customers. Staffing. If you're
going to hire employees, be sure their roles are clearly defined. Prepare
an organizational chart of personnel that covers the functions of sales,
service, manufacturing and purchasing. Training. Provide
opportunities for your staff to learn more about their jobs and
responsibilities. Details, details.
Don't neglect the following: * Get a federal tax
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