Many business students or people interested in entrepreneurship may have pondered the idea of starting a small business. Becoming an owner of a business requires a transition from a dream to a reality. Setting business goals, choosing a name and location, creating a business plan, raising money, and obtaining the proper permits and licenses are all crucial steps in starting a new business venture. There are several ways to determine if owning a business is the right path for you, and there are important questions that should be asked before getting started.
Entrepreneurs must have a certain kind of personality. It is necessary to be a self-starter and a good decision maker. The ability to plan well and good organization skills are key factors in getting a business started. A strong drive and physical and emotional stamina are essential in order to maintain motivation during the long hours it takes to run a business. However, if the criterion is met, there is an upside to starting a business. The most common reason people consider this pathway is because the small business owner is his/her own boss. Instead of increasing profits for someone else, hard work directly benefits the owner, and earning and growth potential are far less limited. A new venture can also be extremely exiting and promising. Overall, �Running a business will provide endless variety, challenge and opportunities to learn� (�entrepreneurship� 1).
There are three main kinds of business ownerships: sole proprietorships, partnerships, and corporations. When starting a business, it is necessary to research and understand the different structures. This paper will focus on sole proprietorship, which is defined as a business that is owned and operated by one person. This is usually the least complicated and inexpensive form of business start-up. Little or no governmental approval is needed and fewer legal restrictions are placed on the owner when a sole proprietorship is established. The proprietor is in control of all decisions and profits. There is an extremely large amount of flexibility and freedom in this type of business, however there are also disadvantages. The owner is responsible for all business debts, and there can be less available capital than in other types of business organizations. If the business fails, the proprietors� assets, such as home ownership and other personal property can be endangered. However, proper insurance coverage can lessen liability problems. Having only one owner can also mean there are limited viewpoints and experience needed to enhance the creativity of ideas associated with successful businesses. It may be a good idea for a small business owner to select the sole proprietorship to begin with, and later change over to a partnership or corporation.
�Starting and managing a business takes motivation, desire and talent� (�First Steps� 1). A way to increase the chance for success is to take the time to conduct the proper research and determine the business goals. Making a list of reasons why a business should be started can help the owner identify the type of business that is right for them. Deciding what niche a business will fill can be made simple by evaluating the competition. What is this business�s advantage? Can a better quality service be delivered? Can a demand be created? These are some of the essential questions whose answers will lead to a more solid business plan.
Deciding on a name for a business is an important step and must be included in a business plan. Choosing a name for a business may seem like an easy task, but it really says a lot about a business. The business name can initially be the reason a customer chooses a business. It also carries the reputation of the business and can serve as an important function that will help customers identify a business among the many. Most of all, it is necessary to have the name backed by an adequate advertising budget that will educate consumers about the products and services that you provide. Advertising will also help eliminate confusion among company identities and reputations. If a more descriptive name is chosen, less money will be spent on advertising the types of services that are provided, because the name will act as an advertisement in itself.
When choosing a retail location for a business, the owner should seek as much assistance from local agencies as possible. The Chamber of Commerce, The Small Business Administration, and even bankers and lawyers can offer helpful advice about potential locations. Determining a budget is the first step in narrowing down an area for a location. When an affordable space is found, many other circumstances that can affect business must be taken into consideration. The area that has been chosen, must reach the target market radius. This means that there needs to be enough customers located in the surrounding area to support needed sales. The structure itself also needs to meet certain requirements. Customers must feel safe as they enter and exit the building, and there should be ample parking provided. If additional space might be needed for future expansions, it is better to plan for it at the beginning. Once a definite name and location have been decided on, it is time to start the preparations for the business plan.
Developing a business plan is often seen as the most important step in starting a business, and maintaining it successfully. The business plan serves many purposes that can benefit both the owner and lender. It provides the necessary information for the investors and banks to decide whether or not to lend the money needed to the business. Most importantly, it allows the owner to �determine the feasibility of the proposed business� (�Creating Business Plans� 1). The business plan is a combination of extensive research and thorough information compiled by the prospective owner, and is usually time consuming to compose. A wise place to start in the long process is to make an outline. This may include information such as: the name and location of the business, a description of the products and services available, marketing techniques, existing competition, and basic business goals. Also to be included is the company�s background information, and the planned staff organization. A list of all key individuals, their responsibilities and salaries, and the total year-end payroll expenses is all needed information. The operating plan will describe how the business will perform production or delivery of service, and should be well thought out and written in a step by step fashion. If any applicable financial information is known at the time it should also be included, but at this point most of the financing information has not been obtained, and this plan will serve as means to obtain it. The business plan is an excellent way for the owner to measure the success of the business. The owner can often refer back to the business plan throughout the first year of business, to make sure the business is on track with the original plan, and has met the projected goals. As the company grows and expands the business plan will need revising.
Raising capital for a business is usually a basic process, but can become difficult and frustrating unless the appropriate plans have been made. Several steps must be taken in order to successfully find the money needed. There are many sources that can be explored in the search for funds such as: personal savings, friends and relatives, banks and credit unions, and venture capital firms. �In order to borrow money, you must know exactly how much you need, why you need it, and how you will pay it back� (�Finding� 2). Becoming familiar with the types of business loans that are available can help owners choose the right loan. The two basic kinds of loans are short term and long term. The owner should research the terms of both types and decide which is best suited for their type of business.
Writing a loan proposal is the next step to receiving financial backing. Most of the information provided in this proposal will come straight out of the business plan. It will consist of a business description, management profile, market information, and personal financial information. Once all of this information has been collaborated, the proposal must be reviewed. A lender makes money by lending others money, but they want to be reassured that they will be paid back. In order to predict if a business will be a reliable investment, they will analyze the owner�s credit report, to determine their creditworthiness. It must be proven through the loan proposal that the owner�s experience is sufficient enough to operate a successful business. According to the Small Business Administration, in order for lenders to even consider approving a loan, at least 25 to 50 percent of the amount that has been requested must be invested into the business by other sources. Very few, if any, lenders and investors will finance 100 percent of a business. The lender will also make sure that the business will have enough cash flow to make monthly payments. Letters of recommendation, a good work history, and a well-written loan proposal will increase chances for loan approval.
Another important step in starting a business is obtaining the proper permits and licenses that are required for the particular type of business being started. Depending on the city and county where the business is established, different business licenses will apply. Health, fire and occupational permits and federal licensing can sometimes be required. Because there are so many different types of permits, the owner must check with the local government in order to meet the proper requirements. For example in a retail business where merchandise is sold, a sales tax has to be collected, and the owner must have a sales tax permit in order to do so.
When all of these steps are in place, maintaining the business should become the owner's number one priority. After the doors to a new business are open, challenges constantly arise. It takes motivation and dedication to keep those doors open, and entrepreneurs should be prepared to do so from the beginning. Starting a business consists of several steps and extensive planning, but the end result is often profitable and fullfilling.