for Going Into Business
Owning a business
is the dream of many people ... starting that business converts
your dream into reality. But there is a gap between your dream and
reality that can only be filled with careful planning. As a business
owner, you will need a plan to avoid pitfalls, to achieve your goals
and to build a profitable business.
for Going into Business" is a guide to help you prepare a comprehensive
business plan and determine if your idea is feasible, to identify
questions and problems you will face in converting your idea into
reality and to prepare for starting your business.
Operating a successful
small business will depend on:
- a practical
plan with a solid foundation;
and willingness to sacrifice to reach your goal;
- technical skills;
- basic knowledge
of management, finance, record keeping and market analysis.
a new owner, you will need to master these skills and techniques
if your business is to be successful.
a first and often overlooked step, ask yourself why you want to
own your own business. Check the reasons that apply to you.
Freedom from the 9-5 daily work routine. ___
Being your own boss. ___
Doing what you want when you want to do it. ___
Improving your standard of living. ___
Boredom with your present job. ___
Having a product or service for which you feel there is a demand.
reasons are better than others, none are wrong; however, be aware
that there are tradeoffs. For example, you can escape the 9 to 5
daily routine, but you may replace it with a 6 a.m. to 8 p.m. routine.
into business requires certain personal characteristics. This portion
of the checklist deals with you, the individual. These questions
require serious thought. Try to be objective. Remember, it is your
future that is at stake!
Answer each question with Yes or No
Are you a leader?
Do you like to make your own decisions?
Do others turn to you for help in making decisions?
Do you enjoy competition?
Do you have will power and self discipline?
Do you plan ahead?
Do you like people?
Do you get along well with others?
This next group
of questions though brief is vitally important to the success of
your plan. It covers the physical emotional and financial strains
you will encounter in starting a new business.
- Are you aware
that running your own business may require working 12-16 hours
a day six days a week and maybe even Sundays and holidays?
- Do you have
the physical stamina to handle the workload and schedule?
- Do you have
the emotional strength to withstand the strain?
- Are you prepared
if needed to temporarily lower your standard of living until
your business is firmly established?
- Is your family
prepared to go along with the strains they too must bear?
- Are you prepared
to lose your savings?
Skills And Experience
and experience are critical to the success of a business. Since
it is unlikely that you possess all the skills and experience needed
you'll need to hire personnel to supply those you lack. There are
some basic and special skills you will need for your particular
By answering the
following questions you can identify the skills you possess and
those you lack (your strengths and weaknesses).
- Do you know
what basic skills you will need in order to have a successful
- Do you possess
- When hiring
personnel will you be able to determine if the applicants' skills
meet the requirements for the positions you are filling?
- Have you ever
worked in a managerial or supervisory capacity?
- Have you ever
worked in a business similar to the one you want to start?
- Have you had
any business training in school?
- If you discover
you don't have the basic skills needed for your business will
you be willing to delay your plans until you've acquired the
businesses range in size from a manufacturer with many employees
and millions of dollars in equipment to the lone window washer with
a bucket and a sponge. Obviously the knowledge and skills required
for these two extremes are far apart but for success they have one
thing in common: each has found a business niche and is filling
most critical problems you will face in your early planning will
be to find your niche and determine the feasibility of your idea.
"Get into the right business at the right time" is very
good advice but following that advice may be difficult. Many entrepreneurs
plunge into a business venture so blinded by the dream that they
fail to thoroughly evaluate its potential.
you invest time effort and money the following exercise will help
you separate sound ideas from those bearing a high potential for
Your Idea Feasible?
- Identify and
briefly describe the business you plan to start.
- Identify the
product or service you plan to sell.
- Does your product
or service satisfy an unfilled need?
- Will your product
or service serve an existing market in which demand exceeds
- Will your product
or service be competitive based on its quality selection price
yes to any of these questions means you are on the right track;
a negative answer means the road ahead could be rough.
a small business to be successful the owner must know the market.
To learn the market you must analyze it a process that takes time
and effort. You don't have to be a trained statistician to analyze
the marketplace nor does the analysis have to be costly.
the market is a way to gather facts about potential customers and
to determine the demand for your product or service. The more information
you gather the greater your chances of capturing a segment of the
market. Know the market before investing your time and money in
any business venture.
questions will help you collect the information necessary to analyze
your market and determine if your product or service will sell.
Do you know who your customers will be?
Do you understand their needs and desires?
Do you know where they live?
Will you be offering the kind of products or services that they
Will your prices be competitive in quality and value?
Will your promotional program be effective?
Do you understand how your business compares with your competitors?
Will your business be conveniently located for the people you plan
Will there be adequate parking facilities for the people you plan
brief exercise will give you a good idea of the kind of market planning
you need to do. An answer of no indicates a weakness in your plan
so do your research until you can answer each question with a "yes".
far this checklist has helped you identify questions and problems
you will face converting your idea into reality and determining
if your idea is feasible. Through self-analysis you have learned
of your personal qualifications and deficiencies and through market
analysis you have learned if there is a demand for your product
following questions are grouped according to function. They are
designed to help you prepare for "Opening Day".
and Legal Structure
Have you chosen a name for your business?
Have you chosen to operate as sole proprietorship partnership or
Business and the Law
in business is not expected to be a lawyer but each business owner
should have a basic knowledge of laws affecting the business. Here
are some of the legal matters you should be acquainted with:
Do you know which licenses and permits you may need to operate your
Do you know the business laws you will have to obey?
Do you have a lawyer who can advise you and help you with legal
Are you aware of
Safety and Health requirements?
covering hazardous material?
ordinances covering signs snow removal etc.?
Code provisions pertaining to small business?
is becoming increasingly important that attention be given to security
and insurance protection for your business. There are several areas
that should be covered. Have you examined the following categories
of risk protection?
- Accident liability
the types of coverage you will need and make a careful comparison
of the rates and coverage with several insurance agents before making
a final decision.
Premises and Location
Have you found a suitable building in a location convenient for
Can the building be modified for your needs at a reasonable cost?
Have you considered renting or leasing with an option to buy?
Will you have a lawyer check the zoning regulations and lease?
- Have you decided
what items you will sell or produce or what service(s) you will
- Have you made
a merchandise plan based upon estimated sales to determine the
amount of inventory you will need to control purchases?
- Have you found
reliable suppliers who will assist you in the start-up?
- Have you compared
the prices quality and credit terms of suppliers?
- Are you prepared
to maintain complete records of sales income and expenses accounts
payable and receivables?
- Have you determined
how to handle payroll records tax reports and payments?
- Do you know
what financial reports should be prepared and how to prepare
number of small businesses fail each year. There are a number of
reasons for these failures but one of the main reasons is insufficient
funds. Too many entrepreneurs try to start and operate a business
without sufficient capital (money). To avoid this dilemma you can
review your situation by analyzing these three questions:
How much money do you have?
How much money will you need to start your business?
How much money will you need to stay in business?
chart below will help you answer the second question: How much money
will you need to start your business? The chart is for a retail
business; items will vary for service construction and manufacturing
answer to the third question (How much money will you need to stay
in business?) must be divided into two parts: immediate costs and
- Fixtures, equipment
- Services, supplies
- Beginning inventory
- Legal, professional
- Licenses, permits
- Telephone utility
start-up costs __________
the moment the door to your new business opens a certain amount
of income will undoubtedly come in. However this income should not
be projected in your operating expenses. You will need enough money
available to cover costs for at least the first three months of
operation. The chart below will help you project your operating
expenses on a monthly basis.
for one month
- Your living
- Employee wages
multiply the total of the chart above by three. This is the amount
of cash you will need to cover operating expenses for three months.
Deposit this amount in a savings account before opening your business.
Use it only for those purposes listed in the above chart because
this money will ensure that you will be able to continue in business
during the crucial early stages.
adding the total start-up costs to the total expenses for three
months (three times the total cost on The chart above) you can learn
what the estimated costs will be to start and operate your business
for three months. By subtracting the totals of the charts from the
cash available you can determine the amount of additional financing
you may need if any. Now you will need to estimate your operating
expenses for the first year after start-up.
first step in determining your annual expenses is to estimate your
sales volume month by month. Be sure to consider seasonal trends
that may affect your business. Information on seasonal sales patterns
and typical operating ratios can be secured from your trade associations.
The relationships among amounts of capital that you invest levels
of sales each of the cost categories the number of times that you
will sell your inventory (turnover) and many other items form "financial
ratios." These ratios provide you with extremely valuable checkpoints
before it's too late to make adjustments. In the reference section
of your local library are publications such as "The Almanac
of Business and Industrial Financial Ratios" to compare your
performance with that of other similar businesses.
determine the cost of sales. The cost of sales is expressed in dollars.
Fill out each month's column in dollars total them in the annual
total column and then divide each item into the total net sales
to produce the annual percentages. Examples of operating ratios
include cost of sales to sales and rent to sales.
primary source of revenue in your business will be from sales but
your sales will vary from month to month because of seasonal patterns
and other factors. It is important to determine if your monthly
sales will produce enough income to pay each month's bills.
estimated cash flow projection will show if the monthly cash balance
is going to be subject to such factors as:
- Failure to
recognize seasonal trends;
- Excessive cash
taken from the business for living expenses;
- Too rapid expansion;
- Slow collection
of accounts if credit is extended to customers.
the following chart to build a worksheet to help you with this problem.
In this example all sales are made for cash.
a doubt preparing an adequate business plan is the most important
step in starting a new business. A comprehensive business plan will
be your guide to managing a successful business. The business plan
is paramount to your success. It must contain all the pertinent
information about your business; it must be well written factual
and organized in a logical sequence. Moreover it should not contain
any statements that cannot be supported.
you have carefully answered all the questions on this checklist
and completed all the worksheets you have seriously thought about
your goal. But . . . there may be some things you may feel you need
to know more about.
and running a business is a continuous learning process. Research
your idea and do as much as you can yourself but don't hesitate
to seek help from people who can tell you what you need to know.