Check-list for starting your own business
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TABLE OF CONTENTS
IDENTIFY YOUR REASONS
PERSONAL SKILLS AND EXPERIENCE
FINDING A NICHE
IS YOUR IDEA FEASIBLE?
PLANNING YOUR START-UP
Owning a business is the dream of many Americans ... 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.
The Checklist 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
As a new owner, you will need to master these skills and techniques if your business is to be successful.
IDENTIFY YOUR REASONS
As a first and often overlooked step, ask yourself why you want to own your own business. Check the reasons that apply to you.
Some reasons are better than others, none are wrong; however, be aware that there are tradeoffs. For example, you can escape the 9-5 daily routine, but you may replace it with a 6 a.m. to 8 p.m. routine.
Going 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!
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.
PERSONAL SKILLS AND EXPERIENCE
Certain skills 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 business.
By answering the following questions you can identify the skills you possess and those you lack (your strengths and weaknesses)
FINDING A NICHE
Small 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 it.
The 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.
Before you invest time effort and money the following exercise will help you separate sound ideas from those bearing a high potential for failure.
IS YOUR IDEA FEASIBLE?
1. Identify and briefly describe the business you plan to start.
2. Identify the product or service you plan to sell.
Answering yes to any of these questions means you are on the right track; a negative answer means the road ahead could be rough.
For 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.
Analyzing 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.
These questions will help you collect the information necessary to analyze your market and determine if your product or service will sell.
This 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.
PLANNING YOUR START-UP
So 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 or service.
The following questions are grouped according to function. They are designed to help you prepare for "Opening Day."
Name and Legal Structure
Your Business and the Law
A person 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:
Protecting Your Business
It 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?
Discuss 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.
Business Premises and Location
A large 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:
1. How much money do you have?
2. How much money will you need to start your business?
3. How much money will you need to stay in business?
Use the following chart to answer the first question:
Chart 2 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 firms.
The answer to the third question (How much money will you need to stay in business?) must be divided into two parts: immediate costs and future costs.
From 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. Chart 3 will help you project your operating expenses on a monthly basis.
Now multiply the total of Chart 3 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.
By adding the total start-up costs (Chart 2) to the total expenses for three months (three times the total cost on Chart 3) you can learn what the estimated costs will be to start and operate your business for three months. By subtracting the totals of Charts 2 and 3 from the cash available (Chart 1) 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. Use the Income Projection Statement (Appendix A) for this estimate.
The 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.
NOTE: 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. For thorough explanations of these ratios and how to use them follow up on the sources of help and information mentioned at the end of this publication.)
Next 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.
The 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.
An estimated cash flow projection (Chart 4) will show if the monthly cash balance is going to be subject to such factors as
Use the following chart to build a worksheet to help you with this problem. In this example all sales are made for cash.
Beyond 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.
Owning 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.
APPENDIX A: INCOME PROJECTION STATEMENT
The income projection (profit and loss) statement is valuable as both a planning tool and a key management tool to help control business operations. It enables the owner-manager to develop a preview of the amount of income generated each month and for the business year, based on reasonable predictions of monthly levels of sales, costs and expenses.
As monthly projects are developed and entered into the income projection statement, they can serve as definite goals for controlling the business operation. As actual operating results become known each month, they should be recorded for comparison with the monthly projections. A completed income statement allows the owner-manager to compare actual figures with monthly projections and to take steps to correct any problems.
In the industry percentage column, enter the percentages of total sales (revenues) that are standard for your industry which are derived by dividing
These percentages can be obtained from various sources, such as trade associations, accountants or banks. The reference librarian in your nearest public library can refer you to documents that contain the percentage figures, for example, Robert Morris Associates’ Annual Statement Studies (1 Liberty Place, Philadelphia PA 19103)
Industry figures serve as a useful benchmark against which to compare cost and expense estimates that you develop for your firm. Compare the figures in the industry column to those in the annual percentage column
Total Net Sales (Revenues)
Determine the total number of units or products or services you realistically expect to sell each month in each department at the prices you expect to get. Use this step to create the projection to review your pricing practices.
Cost of Sales
The key to calculating your cost of sales is that you do not overlook any costs that you have incurred. Calculate cost of sales for all products and services used to determine total net sales.
Where inventory is involved, do not overlook transportation costs. Also include any direct labor.
Subtract the total cost of sales from the total net sales to obtain gross profit.
Gross Profit Margin.
The gross profit margin is expressed as a percentage of total sales (revenues) it is calculated by dividing
APPENDIX B: INFORMATION RESOURCES
U.S. Small Business Administration (SBA)
The SBA offers an extensive selection of information on most business management topics, from how to start a business to exporting your products.
SBA has offices throughout the country. Consult the U.S. Government section in your telephone directory for the office nearest you. SBA offers a number of programs and services, including training and educational programs, counseling services, financial programs and contract assistance. Ask about
For more information about SBA business development programs and services call the SBA Small Business Answer Desk at 1-800-U-ASK-SBA (827-5722) or visit our website, www.sba.gov.
Other U.S. Government Resources
Many publications on business management and other related topics are available from the Government Printing Office (GPO). GPO bookstores are located in 24 major cities and are listed in the Yellow Pages under the bookstore heading. Find a “Catalog of Government Publications at http://catalog.gpo.gov/F
Many federal agencies offer Websites and publications of interest to small businesses. There is a nominal fee for some, but most are free. Below is a selected list of government agencies that provide publications and other services targeted to small businesses. To get their publications, contact the regional offices listed in the telephone directory or write to the addresses below:
Federal Citizen Information Center (FCIC)
Consumer Product Safety Commission (CPSC)
U.S. Department of Agriculture (USDA)
U.S. Department of Commerce (DOC)
U.S. Department of Health and Human Services (HHS)
U.S. Department of Labor (DOL)
U.S. Department of Treasury
U.S. Environmental Protection Agency (EPA)
U.S. Food and Drug Administration (FDA)
For More Information
A librarian can help you locate the specific information you need in reference books. Most libraries have a variety of directories, indexes and encyclopedias that cover many business topics. They also have other resources, such as
In addition to books and magazines, many libraries offer free workshops, free access to computers and the Internet, lend skill-building tapes and have catalogues and brochures describing continuing education opportunities.
Published - July 2011
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