Check-list for starting your own business

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.

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.

	YES
1. Freedom from the 9-5 daily work routine.	______
2. Being your own boss.	______
3. Doing what you want when you want to do it.	______
4. Improving your standard of living.	______
5. Boredom with your present job.	______
6. Having a product or service for which you feel there is a demand.	______

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.

A SELF-ANALYSIS

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!

Personal Characteristics

	YES	NO
1. Are you a leader?	______	______
2. Do you like to make your own decisions?	______	______
3. Do others turn to you for help in making decisions?	______	______
4. Do you enjoy competition?	______	______
5. Do you have will power and self discipline?	______	______
6. Do you plan ahead?	______	______
7. Do you like people?	______	______
8. Do you get along well with others?	______	______

Personal Conditions

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.

	YES	NO
1. 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?	______	______
2. Do you have the physical stamina to handle the workload and schedule?	______	______
3. Do you have the emotional strength to withstand the strain?	______	______
4. Are you prepared if needed to temporarily lower your standard of living until your business is firmly established?	______	______
5. Is your family prepared to go along with the strains they too must bear?	______	______
6. Are you prepared to lose your savings?	______	______

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)

	YES	NO
1. Do you know what basic skills you will need in order to have a successful business?	______	______
2. Do you possess those skills?	______	______
3. When hiring personnel will you be able to determine if the applicants’ skills meet the requirements for the positions you are filling?	______	______
4. Have you ever worked in a managerial or supervisory capacity?	______	______
5. Have you ever worked in a business similar to the one you want to start?	______	______
6. Have you had any business training in school?	______	______
7. 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 necessary skills?	______	______

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.

___________________________________________________

3. Does your product or service satisfy an unfilled need?	YES____	NO____
4. Will your product or service serve an existing market in which demand exceeds supply?	YES____	NO____
5. Will your product or service be competitive based on its quality, selection, price or location?	YES____	NO____

Answering yes to any of these questions means you are on the right track; a negative answer means the road ahead could be rough.

MARKET ANALYSIS

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.

	YES	NO
1. Do you know who your customers will be?	______	______
2. Do you understand their needs and desires?	______	______
3. Do you know where they live?	______	______
4. Will you be offering the kind of products or services that they will buy?	______	______
5. Will your prices be competitive in quality and value?	______	______
6. Will your promotional program be effective?	______	______
7. Do you understand how your business compares with your competitors?	______	______
8. Will your business be conveniently located for the people you plan to serve?	______	______
9. Will there be adequate parking facilities for the people you plan to serve?	______	______

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

	YES	NO
1. Have you chosen a name for your business?	______	______
2. Have you chosen to operate as sole proprietorship, partnership or corporation?	______	______

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:

	YES	NO
1. Do you know which licenses and permits you may need to operate your business?	______	______
2. Do you know the business laws you will have to obey?	______	______
3. Do you have a lawyer who can advise you and help you with legal papers?	______	______
4. Are you aware of	______	______
! Occupational Safety and Health Administration (OSHA) requirements?	______	______
! Regulations covering hazardous material?	______	______
! Local ordinances covering signs snow removal etc.?	______	______
! Federal Tax Code provisions pertaining to small business?	______	______
! Federal regulations on withholding taxes and Social Security?	______	______
! State Workmen’s Compensation laws?	______	______

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?

	YES	NO
! Fire	______	______
! Theft	______	______
! Robbery	______	______
! Vandalism	______	______
! Accident liability	______	______

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

	YES	NO
1. Have you found a suitable building in a location convenient for your customers?	______	______
2. Can the building be modified for your needs at a reasonable cost?	______	______
3. Have you considered renting or leasing with an option to buy?	______	______
4. Will you have a lawyer check the zoning regulations and lease?	______	______

Merchandise

	YES	NO
1. Have you decided what items you will sell or produce or what service(s) you will provide?	______	______
2. Have you made a merchandise plan based upon estimated sales to determine the amount of inventory you will need to control purchases?	______	______
3. Have you found reliable suppliers who will assist you in the start-up?	______	______
4. Have you compared the prices quality and credit terms of suppliers?	______	______

Business Records

	YES	NO
1. Are you prepared to maintain complete records of sales income and expenses accounts payable and receivables?	______	______
2. Have you determined how to handle payroll records tax reports and payments?	______	______
3. Do you know what financial reports should be prepared and how to prepare them?	______	______

FINANCES

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:

personal financial statement

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.

start-up cost estimates

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.

expenses for one month

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.

AFTER START-UP

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.

estimated cash flow forecast

CONCLUSION

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.
If 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.

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

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.

Industry Percentage

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.

Gross Profit

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

Controllable Expenses

Net Profit (loss) (before taxes)	\|	Subtract total expenses from gross profit.
Taxes	\|	Include inventory and sales taxes, excise tax, real estate tax, etc.
Net Profit (loss) (after taxes)	\|	Subtract taxes from net profit (before taxes)
Annual Total	\|	For each of the sales and expense items in your income projection statement, add all the monthly figures across the table and put the results in the annual total column.
Annual Percentage	\|	Calculate the percentage by dividing annual total by total net sales x 100%
	\|	Compare this figure to the industry percentage in the first column

APPENDIX B: INFORMATION 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: