In any type of economy, there are many opportunities for entrepreneurs to go into business for themselves. Recent Bureau of Labor Statistics show that about 71 percent of future employment will come from small businesses. The following areas* are likely to thrive for small businesses:
- Career counseling
- Catering
- Computer and Office Machine Repair
- Day Care
- Educational Services and Products
- Financial Planning
- Home Health Care
- Marketing, promotion, and public relations
- Senior Fitness and recreation
- Specialized delivery services
*Source: Small Business Management: An Entrepreneur’s Guide, 6th Edition
First, you want to be sure that you have the characteristics that make an entrepreneur. If, after your self-analysis, you determine that you do want to start a small business, then the first step you must take is proper planning.
The First Steps to Start a New Business
- Identify a Product or Service That is Needed in the Marketplace.
- Make Sure Your Business Will Work
- How much is my initial investment in order to enter this business?
- How long will it take to turn a profit?
- How long will it take to recover my initial investment?
- How will I pay my living expenses until my business can support me?
- How much risk is involved in this business?
- Hire a Lawyer and an Accountant
- Financial Planning
The list of products and services that are needed in the marketplace is unlimited. You may have a dream that you’ve had for years about an invention. You may have a new idea about a current, or old, product or service that can be used in a new way. You may have a talent that you want to use to start your business. Any of these ideas will work.
What you have to do is find a niche for your product or service. A niche is a small, but profitable, segment of the market where there is demand for your product. The Small Business Administration has a Small Business Startup Kit that can help you focus on factors you should consider.
Finding a niche requires marketing research. You have to realize that your small business can’t be all things to all people. Even large companies find a niche for their products. Let’s take Wal-Mart, for example. Their niche is bargain-minded customers. You have to analyze your product and figure out what type of customer you should market it to. The trend is to make your niche small. Instead of marketing to the familiar 18-49 age group, you want to identify a more specific group.
After doing your market research, you should be able to realistically determine the potential of this business and whether it a realistic expectation that you can reach it? Another important question to answer is whether you will enjoy the business and if you are willing to do the hard work and put in the long hours necessary to achieve success.
After you find a business that you are passionate about and that you are convinced will work in the market niche you have identified, there are issues you have to consider before you can actually choose it.
One of the major reasons for business failure is under-capitalization. Many businesses cost less than $20,000 to start, but many cost more. You must have adequate capital to start your business. If you don’t, you will be one of the many small businesses that fail. You can turn to friends and family for initial money for your business. Alternatively, you can try to get bank loans or you can try to raise equity financing from angel investors or venture capitalists.
It generally takes at least 6-12 months to turn a profit. You need to have another source of income or savings to support you and your family during the start-up phase of your business.
This is an important question. You want to recover your initial investment in your company in as short a time as possible. There is a financial metric you can use to calculate how long it will take called payback period.
You need to have a financial cushion saved to pay your living expenses until your business can support you. The amount is different for everyone. Usually it should be 6-12 months worth of living expenses.
Risk management will become an important part of your business.
If, after considering all of these issues, you still think you can make a go of the business you have chosen, then you are ready to go.
Time to call in the professionals! You will need the services of an attorney. Why? You need to think about what form of business organization your company will be. You also need to deal with issues like patents, trademarks, and copyrights, as well as naming your business. There are also business licenses and regulations to consider. A lawyer can help you with this.
An accountant can help you set up your books and record-keeping. They can also serve as business advisors and tax advisors. Even if you want to keep your books yourself and are capable of handling your taxes, you will want to have a relationship with an accountant in case anything complex comes up.
Most potential business owners say that they want to start a business. They even have an idea and have thought through many of the issues in this article. However, they get stuck at the thought of how to finance their business. Businesses literally cannot start up without significant financial planning. You have to get the money from somewhere. It will make your business life much easier if you plan in advance how to get the needed capital and follow your plan.
Financial planning should be one part of your company’s business plan. However, it also has to be one of the first things you think about, right along with choosing your product or service or you can’t go into business at all. Time to start looking for your funding!
An old business adage is that businesses do not plan to fail, they just fail to plan!
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