Starting and managing a business takes motivation, desire and talent. It
also takes research and planning.
Like a chess game, success in small business starts with
decisive and correct opening moves. And, although initial mistakes are not
fatal, it takes skill, discipline and hard work to regain the advantage.
To increase your chance for success, take the time up
front to explore and evaluate your business and personal goals. Then use
this information to build a comprehensive and well thoughtout business
plan that will help you reach these goals.
The process of developing a business plan will help you
think through some important issues that you may not have considered yet.
Your plan will become a valuable tool as you set out to raise money for
your business. It should also provide milestones to gauge your success.
Getting Started
Before starting out, list your reasons for
wanting to go into business. Some of the most common reasons for starting
a business are:
You want to be
your own boss.
You want
financial independence.
You want
creative freedom.
You want to
fully use your skills and knowledge.
Next you need to determine what business is "right for you." Ask
yourself these questions:
What do I like
to do with my time?
What technical
skills have I learned or developed?
What do others
say I am good at?
How much time do
I have to run a successful business?
Do I have any
hobbies or interests that are marketable?
Then you should identify the niche your business will fill. Conduct the
necessary research to answer these questions:
Is my idea
practical and will it fill a need?
What is my
competition?
What is my
business advantage over existing firms?
Can I deliver a
better quality service?
Can I create a
demand for your business?
The final step before developing your plan is the pre-business checklist.
You should answer these questions:
What business am
I interested in starting?
What services or
products will I sell? Where will I be located?
What skills and
experience do I bring to the business?
What will be my
legal structure? (see overview below)
What will I name
my business?
What equipment
or supplies will I need?
What insurance
coverage will be needed?
What financing
will I need?
What are my
resources?
How will I
compensate myself?
Your answers will help you create focused, well researched
business plan that should serve as a blueprint. It should detail how the
business will be operated, managed and capitalized.
Types of
Business Organizations
When organizing a new business, one of the most important decisions to be
made is choosing the structure of a business. Factors influencing your
decision about your business organization include:
Legal restrictions
Liabilities assumed
Type of business operation
Earnings distribution
Capital needs
Number of employees
Tax advantages or disadvantages
Length of business operation
The advantages and disadvantages of sole proprietorship, partnership
and corporation are listed below.
Sole
Proprietorship
This is the easiest and least costly way of starting a business. A sole
proprietorship can be formed by finding a location and opening the door
for business. There are likely to be fees to obtain business name
registration, a fictitious name certificate and other necessary licenses.
Attorney's fees for starting the business will be less than the other
business forms because less preparation of documents is required and the
owner has absolute authority over all business decisions.
Partnership
There are several types of partnerships. The two most common types are
general and limited partnerships. A general partnership can be formed
simply by an oral agreement between two or more persons, but a legal
partnership agreement drawn up by an attorney is highly recommended. Legal
fees for drawing up a partnership agreement are higher than those for a
sole proprietorship, but may be lower than incorporating. A partnership
agreement could be helpful in solving any disputes. However, partners are
responsible for the other partner's business actions, as well as their
own.
A Partnership Agreement should include the following:
Type of business.
Amount of equity invested by
each partner.
Division of profit or loss.
Partners compensation.
Distribution of assets on
dissolution.
Duration of partnership.
Provisions for changes or
dissolving the partnership.
Dispute settlement clause.
Restrictions of authority and
expenditures.
Settlement in case of death or
incapacitation.
Corporation
A business may incorporate without an attorney, but legal advice is
highly recommended. The corporate structure is usually the most complex
and more costly to organize than the other two business formations.
Control depends on stock ownership. Persons with the largest stock
ownership, not the total number of shareholders, control the corporation.
With control of stock shares or 51 percent of stock, a person or group is
able to make policy decisions. Control is exercised through regular board
of directors' meetings and annual stockholders' meetings. Records must be
kept to document decisions made by the board of directors. Small, closely
held corporations can operate more informally, but record-keeping cannot
be eliminated entirely. Officers of a corporation can be liable to
stockholders for improper actions. Liability is generally limited to stock
ownership, except where fraud is involved. You may want to incorporate as
a "C" or "S" corporation.
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