Starting Your Own Business

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1 Brief Last Revised: 08/2015 Prepared by: Greater Cincinnati and Dayton Chapters Starting Your Own Business Want to start your own business? Our best advice to you is "Be careful!" Why? Because more than half of new businesses fail in their first five years of operation. And, with that failure, the owner incurs a significant loss of time, money, and credibility and, frequently, his good credit rating. What about those who do make it? What distinguishes them from the others who fail? Our experience tells us that to succeed, you need the following characteristics: A burning desire to succeed. You'll need to have a real passion for your product or service. You'll need to be a self-starter and risk-taker who recognize that you have to get going early every Monday morning, making cold calls, motivating yourself and your employees, driving to make it a profitable week. You won't make it with a casual or cavalier attitude. You must have the capacity to accept full responsibility that comes with ownership the buck stops with you! You must have built-in confidence about the business and about surviving in a tough, competitive business world. Expertise. You'll need a good in-depth knowledge of your product or service. If you don't have the expertise, get a job in the industry as an employee for six months or so. Get a feel for the business, get your hands dirty, and get smart on what makes it work. Management skills. Recognize the areas in which you are competent; acknowledge those in which you are going to need help (advertising, marketing, etc.). You're going to have to learn how to manage accounts, control costs and motivate suppliers, customers and employees, and when to say "yes", and when to say "no". Go to another geographic area (where you won't be competing) and talk to the owners of similar businesses. Learn from their experience. Listen carefully to what they offer, and don t offer. A long work week. If you liked working 40 hours a week on your previous job, you're going to love working 60+ hours a week when you're your own boss. You're going to need a lot of energy. It also helps (some say it's essential) to have a spouse who's understanding of your dedication to the success of the business and the little time you'll be able to spend with them. A recent survey of small businesses that had been in business an average of 10 years indicated that, on the average, the owners still worked 50 hours per week and took only 2 weeks vacation per year SCORE Ohio, Brief Number 01.00, Revised 08/ of 5

2 Equity and collateral. Lenders feel more comfortable if you're risking a substantial portion of your capital in the business: it shows that you have a vested interest in its success; this is called your "equity." You may also need to give the lender title to property you own in order to secure a loan; that's called "collateral." Bankers like to protect their investment. Bear in mind that the money you need for a business is not just that required to purchase your business equipment and open the business. You ll need enough to sustain the business until it becomes profitable and is able to sustain itself, which will probably take several months. Unless you have substantial capital reserves, you also need to have, or be able to get, enough additional funds to cover your living expenses until the business turns sufficiently profitable to cover these expenses as well as the business expenses. Will you be able to raise enough money? If you have a shaky credit record or owe substantial amounts, don t count on getting loans or other financial backing. A niche. A French word that, in the business world, means something that distinguishes you from your competition. This could be such things as a unique or patentable product or service, a higher quality, a more convenient location, a faster response time, or anything that causes your potential customers to want to buy from you rather than your competitors. Don t consider making any significant investment in your business until you ve conducted a meaningful survey of potential customers and satisfied yourself that you do have a niche, that there really is a market for what you re offering, and that the market demand is large enough to support and grow your business. Resilience and flexibility. You re going to have to learn to take rejection, and not take it personally. You re going to have to bounce back from failure. You re also going to have to listen to your customers, your suppliers and your employees. They may just have ideas and suggest opportunities that you hadn t thought of and you ll need the flexibility to be receptive to change. You should be willing to make short-term sacrifices for long-term success. It will take considerable perseverance on your part; if you lack this characteristic, your chances to succeed can be diminished greatly. A written business plan: So many businesses fail because the owner doesn't have a sensible business plan. It is essential that you base your future operations on one because it is going to be your roadmap which will guide you from where you are starting to where you want to go with your enterprise and how to do it. The plan will cover such details as: organization, product/service, marketing, advertising, areas to be served, logistics, financial situation, profitand-loss and cash flow projections, showing your breakeven point. Be honest with yourself; don t try to delude yourself that your evaluations are OK when actually they are iffy or merely guesswork based on wishful thinking. If your business plan draft reveals serious deficiencies, it will be better for you to forego opening the operation, or perhaps waiting until some future date when you are better prepared to do so. Help. You'll need help from one or more of the following: a competent attorney, an accountant, an insurance agent who s knowledgeable on business liability insurance and, an experienced business counselor. Their services will almost always be worth the fees you will spend. SCORE has experienced business people who will counsel you gratis on what you need to succeed. They 2015 SCORE Ohio, Brief Number 01.00, Revised 08/ of 5

3 won't do the work for you; but they will give you the benefit of their years of business experience. SCORE has expertise in all the business disciplines from accounting to women's wear, and distributes concise write-ups (called "Briefs") on any of these subjects to its clients SCORE Ohio, Brief Number 01.00, Revised 08/ of 5

4 ADDITIONAL CONSIDERATIONS: In planning your business, decide what you want the business to become long term and how you will fit into the business. Will you manage it to grow and operate without your constant attention? Will you gain value so that you can sell it or leave it to your heirs as a going operation which does not require you to be there? Or will the business manage you, counting on your continued presence? The latter will limit your personal life, vacations and retirement and risk failure should you become incapacitated for any length of time. Plan and organize your business from the outset for it to be successful without necessitating your continued presence. To improve the success of your business and possibly gain an advantage over your competition plan and organize your business to incorporate the latest best practice techniques such as continuous improvement, specific job descriptions, standardized operating instructions, justin-time, team building, value creation, waste elimination, etc.. Consider these as fundamental elements to your business plan. These core concepts will greatly improve your chances for success and sustainable growth and provide a real competitive advantage for your organization. Note: Women entrepreneurs can obtain further assistance, support and networking opportunities through the Small Business Administration s Women s Network for Entrepreneurial Training, and also the SBA s Women s Business Centers. For information, call the Cincinnati SBA office: (513) , Columbus SBA office at (614) and the Cleveland SBA office at (216) Following is an Owner s Checklist for Starting a New Business: Background work assess your strengths and weaknesses establish business and personal goals assess your financial resources identify the financial risks determine the start-up costs decide on your business location do market research identify your customers identify your competitors develop a marketing plan Business transactions select a lawyer choose a form of organization (proprietorship, partnership, or corporation, for example) create your business (register your name, incorporate the business, etc.) select an accountant 2015 SCORE Ohio, Brief Number 01.00, Revised 08/ of 5

5 prepare a business plan select a banker set up a business checking account apply for business loans (if applicable) establish a line of credit select an insurance agent obtain business insurance First steps get business cards review local business codes obtain a lease line up suppliers (if applicable) get furniture and equipment obtain a business license or permit (if applicable) get a federal employer identification number (if applicable) get a state employer i.d. number (if applicable) send for federal and state tax forms join a professional organization set a starting date If you would like to request a Cincinnati SCORE counselor please click here, for a Dayton counselor click here Disclaimer The information contained in these briefs is for general information only. While we endeavor to keep the information up to date and correct, we make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability or availability with respect to the information, products, services, or related graphics contained in the briefs Through these briefs you may be able to link to other websites which are not under the control of SCORE therefore the inclusion of any links does not necessarily imply a recommendation or endorse the views expressed within them. Any reference from SCORE to a specific commercial product, process or service does not constitute or imply an endorsement by SCORE, SBA, SCORE Chapter 34, SCORE Chapter 107, or the United States Government of the product, process, or service or its producer or provider SCORE Ohio, Brief Number 01.00, Revised 08/ of 5