Start up tips for young entrepreneurs

how startup investment works and tips for starting up your own business
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AustinMcmahon,United Kingdom,Researcher
Published Date:16-07-2017
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BUSINESS START-UP & RESOURCE GUIDE Starting a Business in North Carolinat s n i l o y t i t t c i l a a a i t b e m n i d r s o i a o c e f business start-up planning CHECKLIST FOR STARTING A BUSINESS £ Assess yourself as a potential business owner pg x Assess yourself as a potential business owner £ Determine concept feasibility £ Examine critical issues and make important decisions pg £ Investigate legal considerations x Determine concept feasibility and requirements £ Develop your business plan £ Arrange your financing fi pg pg pg x x x Re-evaluate No Yes pg x Examine critical issues and make decisions pg x Investigate legal considerations pg x Develop your business plan pg x Arrange your business financing SBTDC BUSINESS start-up & Resource guide business start-up planning 7 e n n f & i s e r s e c e e D r s h u s t o A a s e G RASSess yourself as a potential business owner While owning a business may be a personal dream for many, managing a business may prove difficult because of a lack of prior business ownership, experience or management skills. An honest self-evaluation will allow you to assess your personal characteristics and determine your willingness to meet the demands of owning your own business. Some of the questions below may be difficult to answer, but it is critical to evaluate your personal weaknesses along with your strengths. When owner weaknesses are identified, partners, managers, staff members, other external resources or education and training may be found to balance strengths and offset weaknesses. Check the questions below that you can answer with “Yes.” Personal characteristics £ Are you a leader? £ Are you confident? £ Do you like to make your own decisions? £ Do you handle responsibility well? £ Do you thoroughly plan projects from start to finish? £ Are you self-disciplined and independent? £ Are you flexible? £ Do you read business publications? £ Do you possess computer skills? £ Are you aware of your current credit rating? £ Are you or your spouse willing to dip into your savings if necessary to help support the business? £ Will your spouse’s income be sufficient to support your family without income from your business? Demands of owning your own business £ Do you realize that running a business may require long hours and reduced personal income? £ Do you have the emotional strength and good health to handle the work load and daily schedule that owing your own business will require? £ If required, are you prepared to temporarily lower your standard of living until your business is firmly established? £ Is your family prepared to support you (time and money required to start a business)? assess yourself as a potential business owner SBTDC BUSINESS start-up & Resource guide 8Business experience and management skills What basic skills do you think you will need to succeed in business? £ Do you possess those skills? £ If you discover you do not have the basic skills needed for your business, are you willing to delay your plans until you have acquired the necessary skills? £ Have you ever worked in a managerial or supervisory position? £ Have you hired and fired people before? £ Have you ever worked in a business similar to the one you are considering? £ Have you had any business training in school? £ Do you understand business financing and cash flow management? £ Are you aware of the record keeping requirements expected in managing a small business? £ Do you understand the fundamentals of marketing and market development? Self-analysis This self-test is simply an overview of the personal characteristics and basic skills needed in small business ownership. The questions with a “Yes” answer indicate the presence of a strength or attribute needed to successfully manage a small business. Those not checked might indicate weaknesses or a lack of willingness to make the sacrifices necessary to run a small business. If you decide to continue with plans to establish a business, then you should resolve to change each blank to a “Yes.” A partner or other solution may provide balance for some weak areas, thus changing a few blanks to “Yes.” However, if there are a significant number of unchecked boxes, overcoming problems may require more development on your part. Identify the five most important interests, skills, or previous work experience that you enjoyed: 1. 2. 3. 4. 5. Write below any opportunities that may be associated with these characteristics, skills, or previous work experience. SBTDC BUSINESS start-up & Resource guide assess yourself as a potential business owner 9Based on your interest, abilities, and experience, summarize your strengths and weaknesses as they relate to the business skills necessary to start and grow a successful business. Ask someone who knows you well to identify your strengths and weaknesses. Compare your answers. Identified by me Identified by someone who knows me well strengths: strengths: weaknesses: weaknesses: Identify ways you can overcome these weaknesses: What kind of commitment are you willing to make to get your business off the ground? assess yourself as a potential business owner SBTDC BUSINESS start-up & Resource guide 10DETERMINE CONCEPT FEASIBILITY Many questions must be answered and certain information gathered before determining the feasibility of your business idea. Careful research and analysis will help you in evaluating your concept and assist you in assessing your idea. Define your business idea The first step is to begin gathering as much information as possible about your business. You will want to read articles, books, and trade publications. It is also a good idea to visit existing businesses and begin the research and planning process. It is important to remember that every business is unique. Taking time to explore your concept will help you identify those specific factors that make your business concept unique. The following questions will guide you in defining your business concept. While looking for the answers, also attempt to identify the potential problems which might relate to your business idea. • What business will you be in? • What product or service will you provide to your customers? • Who will buy your product or service? • Why will your customer buy from you? • When will your customer buy your product or service? • How will your customer know you have products or services available? • How much will your customers pay for your product or service? Using the answers you have provided to the questions above, write a paragraph describing your business concept. determine concept feasibility SBTDC BUSINESS start-up & Resource guide 12Redefine the concept As you refine your idea, there are business-specific issues that need to be addressed: • What specific product or service will your business provide? • Do you have the capability or skills to provide this product or service? If not, how will you overcome this deficiency? • What makes your business idea, product or service unique? • What will be your competitive advantages? • What competitor disadvantages do you have? • Have you identified any potential problems? If so, how will you overcome them? In addition to looking at the business concept, you should also explore the market and the industry you are interested in by seeking out the opportunities and identifying potential problems. Answering the following questions will help you assess your market and industry: • What industry competition exists in your town or region? Identify your competition: • What will you do to better provide a unique or better product or service than your competition? • If there is little or no competition, why not? • Are there potential international or government procurement opportunities in your product or service? If so, identify them. • Are there emerging opportunities in the market place? If so, identify them. • Are current business and economic trends favorable? • Interest rate • Inflation • Business climate • Business trends • Unemployment Remember, it is important to evaluate all aspects of your business concept and to continually balance your ideas against reality. After defining and refining your business idea, does it still look like a good idea to you? If so, you will now want to do more in-depth market research and analysis to better define your market and opportunity. SBTDC BUSINESS start-up & Resource guide determine concept feasibility 13Define your market through research and analysis While market research provides data and information about the industry and its customers, market analysis helps the business owner understand the business environment and the basis on which s/he must compete. Market research Market research tells you who your customers are, where they are, and how large the potential market is. Through research, you will be able to gather certain information and data such as: • Demographics • Size of your potential market • Customer lifestyles and buying behavior • Specifically who the customer is • Determine demand for your product or service There are two basic types of market research—primary and secondary: Primary research is research gathered firsthand Secondary research is already published research. through techniques like surveys, questionnaires, It includes sources like directories, industry focus groups, or in-depth interview. Primary journals, and association publications. Secondary research can be time consuming and possibly research is accessible, less expensive, can be expensive. conducted on a continuous basis, and can be combined with the business owner’s knowledge However, it provides the business owner with the of the business, geographical conditions, and opportunity to hear customer feedback and act customer base. The business owner can informally accordingly. tailor the research findings to meet the needs of Primary research methods the business. • Surveys Secondary research sources • In-depth interviews (Available at many libraries) • Competitor analysis • Business directories • Questionnaires • Industry reports • Focus groups • Newspapers • Tracking customer response to advertising • Business magazines and promotion • Trade publications • Website and social media metrics • Market analysis determine concept feasibility SBTDC BUSINESS start-up & Resource guide 14Market analysis Market analysis helps the business owners understand the business climate in which s/he must compete. It is through market analysis that a business owner determines if a certain business or industry provides an attractive opportunity. Market analysis provides competitive analysis which includes: • Industry analysis: Evaluates the industry’s overall opportunity and attractiveness, including ease of entry, availability of substitutes, and buyer/supplier issues. • Competitor analysis: Who are the primary competitors, and what are their strengths and weaknesses? • Business analysis: Identifies the strengths, weaknesses, opportunities, and threats of your identified market. Examples of secondary print research sources (Available at many public and university libraries) • Demographics USA • Encyclopedia of American Industries • Encyclopedia of Emerging Industries • Encyclopedia of Associations • Household Spending • Lifestyle Market Analyst • Market Share Reporter • Standard & Poor’s Industry Surveys • US Industry & Trade Outlook Online market research resources (the basics) NCLive is available free online through most North Carolina university, community college, and public libraries. You can gain access by logging in using your Library Card Number at www.nclive.org. Business Directories • ACCESSNC – http://accessnc.commerce.state.nc.us • Hoover’s Company Profiles – http://search.proquest.com.prox.lib.ncsu.edu Demographics • Simply Map (includes psychographic and consumer expenditure data) – www.bit.ly/simply-map • US Census Bureau’s American Fact Finder – http://factfinder2.census.gov – www.census.gov • NC State Data Center – www.bit.ly/statedatacenter • ACCESSNC – http://accessnc.commerce.state.nc.us chographicssyp • My Best Segments – www.claritas.com/MyBestSegments/Default.jsp • EASI Demographics – http://easidemographics.com • ESRI – www.esri.com SBTDC BUSINESS start-up & Resource guide determine concept feasibility 15nD i y ustrsisyalan • SBTDC’s “Conducting an Industry Analysis” – www.sbtdc.org/pdf/industry_analysis.pdf • BizMiner – www.bizminer.com • Hoover’s Industry Analysis – http://www.hoovers.com/industry-analysis.html • Market Research.com – www.marketresearch.com • SEC Filings (for competitor analysis) – www.sec.gov/edgar.shtml • ACCESSNC – http://accessnc.commerce.state.nc.us Enhancing your chance for success There are always risks in starting a new business. As a business owner, you will want to lower your risks by incorporating the following ideas into your start-up plan: • Plan ahead. • Make sure you have experience in management and in the type of business you want to start. • Try to best use your strengths and interest in the most appropriate way. • Make decisions based on facts or reliable information. Don’t make hasty decisions. • Seek the support of your family during the start-up phase and difficult times. • Seek advice from a counselor, accountant, attorney, or others. • Talk to others in the same business. • Be persistent, and DON’T GIVE UP determine concept feasibility SBTDC BUSINESS start-up & Resource guide 16EXAMINE CRITICAL ISSUES AND MAKE IMPORTANT DECISIONS As you explore starting your own business, you will find there are many decisions which must be made and important issues to consider in order to minimize your risk and increase your success. • Four important topics covered in this section are: • Entry options • Selecting and using professionals • Selecting a business location • Minimizing your risks Entry options You may be considering starting your own business as a result of a life situation triggering your entrepreneurial desires. Such events could include corporate down-sizing, an accident that limits your physical abilities, or receipt of an inheritance. There are many reasons why people want to go into business for themselves, and there are various options for entering a business of your own. The most common entry options are: • Buying an existing business • Buying a franchise • Starting a new business Buying an existing business Purchasing an established business can lighten the burden of start-up costs, lag time without a salary, establishing markets, and other costs associated with the creation of a new business. Established businesses may have existing good will – intangible (non-monetary) assets such as reputation or historical value. The decision to buy a business requires careful evaluation of many factors, including pricing and financing your purchase. The potential buyer must understand the criteria for selecting a business as well as the motivation for wanting to purchase the business. Consideration should be given to the following: • What is your experience with the industry and/or management? • Does the business match your strengths? • Is the business what you enjoy doing? • Is it in a desirable location? • What are you willing to invest? SBTDC BUSINESS start-up & Resource guide determine concept feasibility 17• Can you get financing? • What size business do you desire in terms of sales, profit, and employees? • Is the business fairly priced? • Is it profitable? If the business under consideration has a product or service outside your area of expertise, it is important to make certain that the key employees will stay after the sale or that you can hire someone with similar experience. Finding a business for sale Finding a good business opportunity is not always easy. Sources to consider: • Printed advertisements • Trade sources and suppliers in the industry • Friends and acquaintances • Intermediaries such as business brokers, real estate brokers or acquisition specialists Evaluating the business As a buyer, first evaluate a business by reviewing its history and the way it operates. Develop an understanding of the business’ method of acquiring and serving its customers, determine how it generates its sales, learn its marketing strategy, and develop an understanding of its finance and operations functions. Checklist of material for the evaluation process Obtain the following information from the existing business: £ 3-5 years financial statements £ 3-5 years tax returns £ Interim financial statements £ Copies of all real estate, leases, or deeds £ Debt schedule £ Accounts receivable and aging schedule £ Accounts payable and aging schedule £ Inventory list £ Supplier list (including contracts) £ Customer list (including contracts) £ Projections £ Organizational charts and employee contracts £ Industry information to which the owners may have access £ Details of equipment leases and other contingent financial commitments CHECKLIST PROVIDED BY THE SABRE GROUP—CONFIDENTIAL BUSINESS SALES AND VALUATIONS OF GREENSBORO/RALEIGH/DURHAM/GREENVILLE determine concept feasibility SBTDC BUSINESS start-up & Resource guide 18Important questions Evaluate the business’ potential according to your goals, employer responsibilities, product or service demand, market, and financial considerations. Ask and get answers to questions regarding all aspects of an existing business before entering any purchase agreements. Start with basic questions, like those listed below. Others may be required depending on the specific business: • Why is the business for sale? Has it been making a profit? If not, do you have a plan to make the business profitable? • What kind of reputation does the establishment have currently? How would you change that reputation? What is the price of good will? What is the consistency of the client base – a few large clients or many smaller customers? • Will the sale include equipment, property, inventory, debts, employee contracts, name, logo, slogans, signage, customer files, etc.? • Are all of the books in order and well maintained? • Have you reviewed the past and current financial statements with the counsel of an accountant? • Are there any liens against the property for sale? Are there any claims on inventory or equipment? Have the taxes been paid to date? • Have you reviewed existing business contracts and the effect of the transaction on those contracts? • Are they loyal because of a personal relationship or because of the level of quality service? • Will the lease be transferred into your name or will the owner require a new lease? Is the location suitable for your plans? Are there any environmental concerns with this location? Are there licensing concerns? • What liabilities exist? • What policies have been established with the employees regarding work environment, salary/ commissions, benefits, vacation pay, and fringe benefits? • Will the owner be cooperative with the transition of ownership with regard to tax issues, utility transfers, government requirements, employees, and other procedures? • Are there any environmental issues with respect to your chosen business? • If using a broker, do you realize s/he is representing the interest of the seller? • Is the seller willing to sign a non-compete agreement? • Will the seller agree to a contractual arrangement for a period of consultation? • Consider whether owner is willing to finance all or some of the purchase price The services of an accountant, attorney, and banker are recommended when buying an existing business. Investigation and research will be crucial to uncovering as much information as possible about the business for sale. SBTDC BUSINESS start-up & Resource guide determine concept feasibility 19Buying a franchise Franchising has emerged as a popular way for potential business owners to start a new business. A franchise offers advantages in name and product recognition, proven operation procedures as well as volume purchasing power. In this arrangement, the provider, or franchisor, contracts with you, the franchisee, to give you the right to sell or distribute a service or product under the franchisor’s system in a particular area. As with any opportunity, both advantages and disadvantages must be examined before a decision to invest is made. Advantages of a franchise Disadvantages of a franchise • Some require relatively small capital • Complicated legal negotiations investment with franchise financing • Restrictions on purchasing • Initial corporate support for start-up • Franchising fees • Continuous management training and • Required to share portions of business counseling profits with corporation (sales/royalties) • Existing goodwill and brand name appeal • Loss of personal control over some (sometimes) aspects of operation (e.g., use of name/ • Standardized quality of goods/services logo for advertising, territory, uniforms, product purchasing requirements) • Proven products and business format • Less freedom and opportunity for • Some opportunities require no prior creativity experience in that business field • Potential problems if owner wants • Buying power and programs franchisor to buy franchise back • Development of advertising and • Limited control over pricing, product lines, promotions programs (both local and and suppliers national) • Human resources policies may be • Site analysis instituted by corporation (potentially • Proven business model unsatisfactory training programs) • Actions by the corporation may affect business of franchisee (especially new store locations close to yours) Locate a list of lawyers specializing in franchise negotiations while in the research stage. Once a franchise opportunity has been selected, retain a lawyer for every step of the negotiations. The negotiations serve as the foundation of the franchise. Working with the lawyer, set policies and agreements that will enable the franchise to thrive now and in the future. All obligations, rights, privileges, risks, opportunities, assets, and liabilities must be detailed and agreed upon by all parties before the contract is signed. determine concept feasibility SBTDC BUSINESS start-up & Resource guide 20The Federal Trade Commission offers the free publications: Buying a Franchise: A Consumer’s Guide http://business.ftc.gov/documents/inv05-buying-franchise-consumer-guide Franchises, Business Opportunities, and Investments http://business.ftc.gov/selected-industries/franchises-and-business-opportunities A number of books on franchising are also available at public libraries and bookstores. Starting a new business Starting your own business can be a very exciting endeavor. It allows you great freedom and opportunity to explore and develop your own business idea. It is an opportunity for you to exercise your creativity and thinking ability to do the following: • Research your business idea • Develop a strategy • Determine your marketing approach • Address key operational issues • Make your own decisions • Develop your business idea from the ground up Successfully starting your own business can provide a sense of accomplishment and satisfaction in knowing you did it yourself. However, if the business fails, you must assume all the liabilities and emotional strain that goes with it. There are many misconceptions surrounding owning one’s own business. Consider the following common misconceptions: will i Be my own Boss. Being your own boss does not mean you can play golf or go fishing anytime you want. The reality is the business and your customers become your boss and can demand 50-65 hours per week. can get rich o i . vernight Small business and free enterprise provides a great opportunity to build wealth; however, it will take time. Studies indicate that more than a third of small businesses that grow significantly do so after 10 or more years of existence. can expect imme i Dte incia ome from my B usiness. This is not likely. Generally, it takes 6-12 months before a new business can start to pay the owner a decent salary. You should have a cash reserve or savings to provide financial support for you and your family during the start-up phase. can st i t my ar B usiness with little or no mo. ney Poor capitalization is one of the major causes of business failure. Lack of capital results in negative cash flow, which can result in poor business decisions and serious credit problems. SBTDC BUSINESS start-up & Resource guide determine concept feasibility 21 will inc i te my orpora B usiness anD use other people’s mo. ney Many books and articles have been written about using OPM (other people’s money). It is difficult to borrow your way to wealth as a new business. The corporate shield probably will not protect you in case of failure. Most banks today will require you to personally guarantee the corporate loans for start-up businesses. Consequently, all your assets will be at risk. You might ask, “How do I know what kind of business to start?” or “How are businesses formed?” Business ideas emerge in many ways. Examples are: • Finding and meeting an unfulfilled market need • Building a business on an existing customer relationship • Spinning off a business based on your experience and knowledge • Capitalizing on a new invention or technology • Growing a part-time business or hobby into a full-time opportunity You must decide what kind of business you want to start. It is also important to examine yourself and decide what you want from the business. Keep in mind that starting a business requires careful thought and planning. Many aspects of the business must be considered, including legal issues, financing, marketing concerns, employee relations, accounting procedures, equipment purchases, and location. Research, preparation, organization, and planning are critical in a start-up venture to minimize risk and enhance your chance for success. Contact your small business assistance providers to assist you during this critical time (see Resource & Information List section, pg 54). Selecting and using professionals Starting your own business involves many decisions, which often seem overwhelming. It has been shown that there is a strong correlation between using outside professionals and business success. In today’s business world, where many new businesses fail within the first five years, it only makes sense to increase your chances for success by seeking the broad experience and expertise that professional resources and advisors can provide. Outside advisors can assist you in making decisions based on facts, not wishful thinking. They can also provide a reality check and give you insight in starting and guiding your business. There are two important categories of advisors: informal and professional. Informal advisors include: • Other business owners • Friends and family • Members of other entrepreneurial groups or projects • Members of your board of directors determine concept feasibility SBTDC BUSINESS start-up & Resource guide 22Professional advisors include: • Lawyers • Accountants • Bankers • Insurance agents • Marketing professionals • Consultants • Small business assistance providers Most professional advisors will expect to be compensated for their assistance while informal advisors typically only need to be asked to help. When selecting a professional advisor, look for a skilled advisor who meets your needs. Attributes you should look for include: • Strong professional skills and knowledge • Integrity • Small business orientation • Engaging and creative • Positive attitude • Willing to listen • Team member and advisor Selecting the right professional advisor will not only provide advice and consistency to help your business succeed, but s/he can also be instrumental in identifying other professional team members. To go about finding the right professional advisor, you should: • Ask small business assistance providers • Ask other business owners • Call the professional and schedule an appointment. Interview them as you would an employee. Be sure to request references. • Look for a comfort level and confidence; confidence in their integrity, discretion, and concern for your business. If you already have a good relationship with a banker or other professional, s/he is a good source of referral. SBTDC BUSINESS start-up & Resource guide determine concept feasibility 23Selecting a business location Location is more important to some businesses than to others. The importance of the location is determined by certain characteristics of the business. Factors that must be considered: • Do customers travel to the business or do employees travel to the customer? • Is convenience a key factor in relationship to what your business offers the customer? • Is your business offering a special product with little accessible competition? • Will your product or service require a specific location? • Will proximity to vendors and customers play an important role in your location? • Are transportation, labor, utilities, state and local taxes, zoning, and other regulations critical factors to consider in your site selection? • Do traffic flow, parking and other business establishments impact your site selection? • How much space is required? • Do you need expansion capability? • Should you lease or buy a facility? • What are the terms of your lease, if leasing? • How is your rent determined? (Rent = cost of space + advertising) • What are the insurance requirements? • Do you understand home-based business expenses and requirements? • Do you understand the zoning and code requirements? These questions represent some of the issues that need to be answered before making a business site selection. Additional questions and information may be required depending on whether your business is a service business, retail store, or manufacturing facility. Local resources are available to assist you with your site selection. Resources include: • Your Chamber of Commerce • NC Department of Commerce (www.nccommerce.com) • Business Link North Carolina (www.blnc.gov) • Economic Development Board (www.ncedb.com) • Duke Energy (www.considerthecarolinas.com) • Duke Energy (www.duke-energy.com/community/) • Commercial real estate brokers • Your SBTDC business counselor (www.sbtdc.org) determine concept feasibility SBTDC BUSINESS start-up & Resource guide 24Minimizing your risks Risks abound in the business world. As an entrepreneur, you will want to protect your interest and minimize your risk from the beginning. The time to address these important issues is during the planning stage. Advice of professionals in accounting, insurance, banking, and law will help you make decisions to minimize your risks and to identify your best protection options. Insurance protection Insurance protection is an important consideration in minimizing risk. Oftentimes business owners lack expertise when it comes to insurance needs. Basic steps in developing an insurance program are: • Review your current coverage • Identify your insurance needs • Develop a plan (including the cost) • Seek professional advice Most businesses will require the following types of insurance: • Fire insurance • Liability insurance • Automobile insurance • Worker’s compensation insurance Depending on the type of business you are starting, other coverage you may need includes: • Business interruption insurance • Crime insurance • Group life insurance • Key man insurance • Disability insurance • Bonding Most banks require insurance as a condition of their loan. List below the things you must now consider in order to buy an existing business, start a business, or purchase a franchise. SBTDC BUSINESS start-up & Resource guide determine concept feasibility 25LEGAL CONSIDERATIONS AND REQUIREMENTS As an entrepreneur, it is your responsibility to ensure that your business is properly complying with state and federal regulatory requirements, registration, permits, licenses, and employer responsibilities. Stiff penalties may be assessed against you and/or your company if you are found in violation of certain government requirements. This section will address three primary legal considerations: • Regulatory requirements • Legal structure of your business • Employee responsibility Regulatory requirements Permits, licenses and regulations Most businesses are required to obtain some kind of license or permit – city, state, and/or federal. Certain types of businesses may be required to obtain special permits from local health authorities, building inspectors, and police/fire departments. The business owner should take steps to ensure that the business does not violate any zoning regulations or ordinances regarding hazardous activities. Mistakes in obtaining the proper permits and licenses can be expensive, at best. Federal licenses and permits Most new small businesses are unlikely to require any federal permit or license to operate unless they are engaged in: • Rendering investment advice • Preparing meat products • Selling alcohol, tobacco, and firearms Federal permits or licenses are also necessary to start some large-scale operations in regulated industries, such as: • Radio or television stations • Common carriers (telephone companies) • Produce drugs or biological products Consult an attorney regarding regulatory requirements. Although a prospective business may not strictly fit in one of these categories, it is important that you make certain that no federal regulations apply before starting your business. determine concept feasibility SBTDC BUSINESS start-up & Resource guide 26

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