Starting a Small Business

Goals:

• recognize important factors to be considered when starting a business
• describe the lements of a business plan
• identify types and sources of financing for a small business

Key Terms:

• business plan
• start-up financing
• short-term financing
• long-term financing

• The Business Decision - Many people think about starting a business – few actually do. The procedures followed to start a business often determine whether it will be successful.
• An Idea Plus Experience
  • Every business begins with an idea
  • Hobbies
  • Interests
  • Business experience
  • Books and magazines
  • Franchises
  • Few people should think about starting a business without working for some time in a small business
  • Several years of training will help to prepare you for the role of owner
  • Having responsibility for decisions and opportunities to manage people is a key part of that experience
• Right Place and Time
  • The right place to open is a must
  • Most retail businesses need good customer traffic
  • Must be easy to find
  • Not far off the beaten path
  • Wholesaler needs access to manufacturers where products are obtained for resale to other businesses
  • Manufacturers must locate in an area with access to the raw materials used in manufacturing
  • Transportation systems must be easy to reach for distributing finished products
  • Most successful businesses open in a period when customer demand for certain services or products is high
• Team Approach
  • Most small business owners are very independent
  • They started their business because they did not want to take direction from others
  • A business is not easy to run without the help of others
  • Need employees
  • Part-time
  • Full-time
  • Employees must be chosen carefully for their ability to work as a team.
  • Choosing team members is one of the most important initial business decisions
  • Also need people with specialized business knowledge
  • Bankers
  • Lawyers
  • Accountants
• Preparation and Research
  • Having enough information to make good business decisions
  • Customers
  • Competitors
  • Important information
  • Government regulations
  • Information will help to make sure that decisions are made objectively/
• Developing a Business Plan – When successful businesses are compared to those that failed, one factor stands out as the most important difference. The owners of successful businesses develop and follow a business plan. The owners of businesses that fail often do not.
• Business Plan – a written description of the business idea and how it will be carried out.
• Key elements of a business plan include
  • A general description of the company
  • The credentials of the owners
  • A description of the product or service
  • An analysis of the market
  • Demand
  • Customers
  • Competition
• Most plans are developed for one year and then updated for the next year
• A business plan is usually required if the business needs help from others – especially financing.
• A business paln forces the owner(s) to think about important activities, the amount of time it will take and their cost.
• Serves as a guide to keeping the business on track
• Steps in Developing the Business Plan
  • The business owner is in charge of developing a business plan
  • First – gather and review information
  • Second – develop strategic alternatives
  • Third – each section of the business plan should be written
• Financing the Small Business – a new business with a good product or service may run out of money before it can become profitable. Several year of operation are required before most new businesses earn a profit. Finding adequate financing is a key step in starting and running a new business.
• Types of Financing
  • Start-up Financing – the amount of money needed to open the business
  • Buildings
  • Equipment
  • Inventory
  • Supplies
  • Licenses
  •  Short-term Financing – the money needed to pay for the current operating activities of the business. Financing obtained for a period of of less than one year; usually one or two months
  • Long-term Financing –money needed for the main resources of a business
  • Land
  • Buildings
  • Equipment
• Sources of Financing – finding needed money may be the most difficult part of starting a business.
  • Usually comes from a mixture of owner supplied and borrowed funds.
  • Source of owner-supplied money depends on ownership structure
  • Proprietorship – one person will supply the money
  • Partnership – each partner will be expected to contribute
  • Corporation – financed by the shareholders
  • Borrowed Funds
  • Loans from banks and other financial institutions
  • Funding provided by other people such as friends and family
  • Other companies that sell equipment, materials or inventory to a business will extend credit to a business if the business does not have financial problems
  • A new business owner must be careful about accepting credit.
  • The owner must take into account the cost of the credit and when the payment is due.