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Starting Your Own Business
MBA can help you get started right
More Americans are starting their own businesses today than at any other time in our history. There are various motives for this trend: loss of jobs, weariness with corporate life, the "graying" of the workforce, and access to technology among others.
Regardless of your motivation, you are entering into an exciting venture which, if properly planned, has an excellent chance of success. Unfortunately, most start-ups are not planned at all and almost 80% of them fail within the first three years. We hope the following guidelines will prove useful to you and that we will soon be welcoming you as a member of MBA, the region's largest private organization for the American Entrepreneur.
The first question you must ask yourself is, "How do I know there is a need for what I plan to offer the public?" It is crucial for you to determine if there really is a need for "another one" of the ventures you are planning. Do not answer this question by asking those who are close to you if the idea is good one. They want to support you and cannot really be objective. Determine by yourself if the idea is feasible. Go to the library and ask the reference librarian for a directory of associations and trade groups. Find the group that represents the kind of business you want to open and write or call them. Find out if newer ventures have been succeeding or if the market is glutted. Ask about realistic start-up costs. Determine what current problems are plaguing the industry or business - environmental, legislative, etc.
Next, you need to find out if people need your product or service in the locale in which you intend to offer it. If it is a product, talk to people who are shopping for similar products in supermarkets, flea markets, home improvement stores, etc. Malls are an excellent place to ask questions of people if your product is going to be retailed.
If you determine that there is too much competition for you, don't give up . . . yet. Try to determine if you can offer the product or service more economically, with better quality, etc. If the answer is "no" go on to something else. Staying with an idea because you have a personal affinity for it will lead to failure if your head tells you the market isn't interested.
If you have decided that the business idea is a good one, there are steps you have to take. They are listed for you below. Before you start your business you are eligible to join the Midlantic Business Alliance as an Individual Associate Member. Once your business opens, you can upgrade to a Regular Membership.
This informational advice is offered as general business advice only and is not intended to serve as legal advice. You should review your plans with an accountant and/or attorney.
Financing
Where will you get the money to run your business? This is an important decision which should be properly made before you make any other commitments such as leases, advertising contracts, or the purchase of other equipment. More businesses fail because they are under capitalized than for any other reason. Too often the business owner just did not understand the various costs and other expenses that the start-up of the business generates. Unfailingly, those businesses are the ones that did not prepare a proper business plan before starting operation.
The first source of capital is family. More businesses are started with family capital than any other kind, and you should evaluate that source first. Banks are a traditionally used source but, as a source for small business start-up loans, they are an unrealistic source. New business owners mistakenly assume that there is something called a "small business loan." That form of loan really does not yet exist. A commercial loan is the type of loan which businesses are granted regardless of size. Banks make commercial loans to companies that have a track record, are usually formed as corporations or able to document business history on the appropriate schedules in their personal income taxes.
Most banks will not grant loans in the $5,000 to $50,000 range as commercial loans. There are a number of banks that are now looking at smaller loans, but almost always as personal loans. A bank will consider a personal loan if you have a good credit history and can secure the loan with either a home (primary residence only) or existing certificates of deposit. Banks will also require a review of at least the last three years of your personal income taxes. They will also require that you maintain at least some of your accounts with them.
So, where do you turn for lower amounts of capital? If the amount is especially small, say up to $5,000, you may wish to look at cash advances on a credit card. While the interest may be as much as double that of a bank loan, the monthly percentage of principle to be repaid is low and interest is usually no more than 1.75% monthly. On a $5,000 loan your monthly payment may be in the area of $275 to $300 which should be manageable. You will only know if it is manageable if you have prepared a good cash flow estimate on your business plan.
How much should you borrow? You should plan on the business operating in the "red" for at least six months. If you have calculated all of your expenses and realistically and conservatively estimated your revenues, you will probably need an amount to cover the difference between revenue and monthly expenses, times six. Be certain you have included all expenses in your business plan cash flow projections - rent, pocket money, food, medical, etc.
Write a Business Plan
This is perhaps the most important task you have. In fact, it should be completed before you even open the doors of your business. The business plan is a blueprint for marketing, cash flow, and strategic planning. It does not matter what type of business or professional practice you are going to have. The business plan is the first order of managerial business.
Step By Step
Starting your business should include the following steps:
1. You must determine the form that your business will take. Your business can be operated in most cases as either a corporation, sole proprietorship, or partnership (if there is more than one owner). An accountant or lawyer can help you determine the most effective form for your situation.
2. Get an Employer Identification Number (EIN) Call your local office of the Internal Revenue Service (IRS). You will find that office listed in the federal pages of your phone directory. Ask the IRS to send you form SS-4. When you return the completed form, the IRS will send you an EIN. They will also mail you notification of IRS changes that affect your business. The EIN is only required for some forms of business, but we recommend that you get one regardless of the form your business takes. Many banks and other vendors will require you to have one in order to transact business with them.
3. Determine with your accountant if any of your services or products are going to require you to charge a state sales tax. If so, call the local office of your state Department of Revenue to get a Sales and Use Tax License. This department will be listed in the state section of your phone directory.
4. If the name of your business is anything other than your legal name, you will have to register the name with your state. Call your state's Department of Labor and ask for the proper form for registering your business. (Note: Certain types of professional practices do not have to register in this manner. Consult your attorney or accountant if you have a professional practice to determine if you must register.)
5. If you are going to have employees, you must make plans to take all appropriate payroll deductions and in a timely fashion. You must get a tax schedule from your accountant or make arrangements for a third party to handle your payroll. Failure to make and pay the appropriate payroll taxes will result in costly fines, penalties, interest, and possible prosecution.
As a MBA Member, you are entitled to seminars, free consultations, and other business resources to assist you in starting your business.
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Midlantic Business Alliance
867 Sussex Blvd.
Broomall, PA 19008
(800) 533-3732
(610) 604-0588 (fax)
Contact Member Services | | | © 2009, MBA. All rights reserved. |
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