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BUSINESS
GUIDES
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Start up guide 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. |
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1: List your reasons for wanting to go into business. Some of the most common reasons for starting a business are:
2: Next determine what business is right for you. Ask yourself these questions:
3: Identify your business niche. Research and answer these questions:
4: The final step before developing your plan is the pre-business checklist. You should answer these questions:
Your answers will help you create a focused, well-researched business plan that will serve as a blueprint for business operations, management, and capitalization. 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 and accountant. The business plan is a flexible document that should change as your business grows. Is Entrepreneurship For You? Are you a self-starter? How well do you get along with different personalities? How good are you at making decisions? Do you have the physical and emotional stamina to run a business? How well do you plan and organize? Is your drive strong enough? How will the business affect your family? Every business is different, and has its own specific cash needs at different stages of development, so there is no generic method for estimating your startup costs. Some businesses can be started on a shoestring budget, while others may require considerable investment in stock and/or equipment. It is vitally important to know that you will have enough money to launch your business venture. To determine your startup costs, you must identify all the expenses that your business will incur during its startup phase. Some of these expenses will be one-time costs such as the fee for incorporating your business or the price of a sign for your building. Some will be ongoing, such as the cost of utilities, stock, insurance, etc. While identifying these costs, decide whether they are essential or optional. A realistic startup budget should only include those things that are necessary to start that business. These essential expenses can then be divided into two separate categories: fixed expenses (or overhead) and variable expenses (those related to producing sales for the business). Fixed expenses will include things like the monthly rent, utilities, administrative costs, and insurance costs. Variable expenses include stock, postage and packaging costs, sales commissions, and other costs associated with the direct sale of a product or service. The most effective way to calculate your startup costs is to use a worksheet that lists all the various categories of costs (both one-time and ongoing) that you will need to estimate prior to starting your business. Breakeven analysis is a tool used to determine when a business will be able to cover all its expenses and begin to make a profit. For the startup business it is extremely important to know your startup costs, which provide you with the information you need to generate enough sales revenue to pay the ongoing expenses related to running your business. A startup business owner must understand that £5,000 of product sales will not cover £5,000 in monthly overhead expenses. The cost of selling £5,000 in retail goods could easily be £3,000 at the wholesale price, so the £5,000 in sales revenue only provides £2,000 in gross profit available for overhead costs. The breakeven point is reached when revenue equals all business costs. To calculate your breakeven point you will need to identify your fixed and variable costs. Fixed costs are expenses that do not vary with sales volume, such as rent or administrative salaries. These costs have to be paid regardless of sales and are often referred to as overhead costs. Variable costs vary directly with the sales volume, such as the costs of purchasing inventory, shipping, or manufacturing a product. The formula for determining your breakeven point requires no more than simple arithmetic. More information is available in our "general guide". Success in business is never automatic. It isn't strictly based on luck - although a little never hurts. It depends primarily on the owner's foresight and organization. Even then, of course, there are no guarantees.
These reasons aren't meant to scare you, but to prepare you for the rocky path ahead. Underestimating the difficulty of starting a business is one of the biggest obstacles entrepreneurs face. However, success can be yours if you are patient, willing to work hard, and take all the necessary steps. On the Upside
A market in its entirety is too broad in scope for any but the largest companies to tackle successfully. The best strategy for a smaller business is to divide demand into manageable market niches. Small operations can then offer specialized goods and services attractive to a specific group of prospective buyers. There are undoubtedly some particular products or services you are especially suited to provide. Study the market carefully and you will find opportunities. As an example, surgical instruments used to be sold in bulk to both small medical practices and large hospitals. One firm realised that the smaller practices could not afford to sterilize instruments after each use like hospitals did, but instead simply disposed of them. The firm's sales representatives talked to surgeons and hospital workers to learn what would be more suitable for them. Based on this information, the company developed disposable instruments which could be sold in larger quantities at a lower cost. Another firm capitalised on the fact that hospital operating rooms must carefully count the instruments used before and after surgery. This firm met that particular need by packaging their instruments in pre-counted, customized sets for different forms of surgery. While researching your own company's niche, consider the results of your market survey and the areas in which your competitors are already firmly situated. Put this information into a table or a graph to illustrate where an opening might exist for your product or service. Try to find the right configuration of products, services, quality, and price that will ensure the least direct competition. Unfortunately, there is no universally effective way to make these comparisons. Not only will the desired attributes vary from industry to industry, but there is also an imaginative element that cannot be formalized. For example, only someone who had already thought of developing pre-packaged surgical instruments could use a survey to determine whether or not a market actually existed for them. A well-designed database can help you sort through your market information and reveal particular segments you might not see otherwise. For example, do customers in a certain geographic area tend to purchase products that combine high quality and high price more frequently? Do your small business clients take advantage of your customer service more often than larger ones? If so, consider focusing on being a local provider of high quality goods and services, or a service-oriented company that pays extra attention to small businesses. If you do target a new niche market, make sure that this niche does not conflict with your overall business plan. For example, a small bakery that makes cookies by hand cannot go after a market for inexpensive, mass-produced cookies, regardless of the demand. Many find the idea of running a small business appealing, but
lose their motivation after dealing with business plans, investors,
and legal issues associated with new start-ups. For those disheartened
by such risky undertakings, buying an existing business is often
a simpler and safer alternative. Disadvantages An important step in the small business start-up process is deciding whether or not to go into business at all. Each year, thousands of potential entrepreneurs are faced with this difficult decision. Because of the risk and work involved in starting a new business, many new entrepreneurs choose franchising as an alternative to starting a new, independent business from scratch. One of the biggest mistakes you can make is to hurry into business, so it's important to understand your reasons for going into business, and to determine if owning a business is right for you. If you are concerned about the risk involved in a new, independent
business venture, then franchising may be the best business option
for you. But remember that hard work, dedication, and sacrifice
are essential to the success of any business venture, including
franchising. Franchising is based on mutual trust between the franchisor and franchisee. The franchisor provides the business expertise (marketing plans, management guidance, financing assistance, site location, training, etc.) that otherwise would not be available to the franchisee. The franchisees brings to the franchise operation the entrepreneurial spirit and drive necessary to make the franchise a success. There are primarily two forms of franchising:
In the simplest form, a franchisor owns the right to the name or trademark and sells that right to a franchisee. This is known as "product/trade name franchising." The more complex form, "business format franchising," involves a broader ongoing relationship between the two parties. Business format franchises often provide a full range of services, including site selection, training, product supply, marketing plans, and even assistance in obtaining financing. To learn more about:
visit the following websites:
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