Small Business Startup Basics

Starting and managing a business takes motivation and talent. It also takes research and planning. Although initial mistakes are not always fatal, it takes extra skill, discipline and hard work to regain the advantage. That's why it is so important to take time to explore and evaluate your business and personal goals before you launch a new business. Then use this information to build a comprehensive and thoughtful business plan that will help you reach these goals.

Getting Started

List your reasons for wanting to go into business. Some of the most common reasons for starting a business are:

• Self-management
• Financial independence
• Creative freedom
• Full use of personal skills and knowledge

Next determine what business is right for you. Ask yourself these questions:

• What skills and experience can I bring to the business?
• What do I like to do with my time?
• What technical skills have I learned or developed?
• Will I have the support of my family?
• How much time do I have to run a successful business?
• Do I have any hobbies or interests that are marketable?

Identify your business niche:

• Is my idea practical, and will it fill a need?
• What is my competition?
• What is my business's advantage over existing firms?
• Can I deliver a better quality service?
• Can I create a demand for my business?

Finally, before developing your business plan, answer these questions:

• What legal structure will I use?
• How will my company's business records be maintained?
• What insurance coverage will be needed?
• What equipment and supplies will I need?
• How will I compensate myself?
• What are my resources?
• What financing will I need?
• Where will my business be located?
• What will I name my business?

The Business Plan

Your answers to the above questions will help you create a focused, well-researched business plan that will serve as a blueprint for business operations, management and capitalization. Developing a business plan will force you to think through some important issues that you may not otherwise consider. Your plan will become a valuable tool as you set out to raise money for your business, and it will provide milestones to gauge your success.

A business plan precisely defines your business, identifies your goals and serves as your firm's resume. The basic components include a current and pro forma balance sheet, an income statement and a cash flow analysis. It helps you allocate resources properly, handle unforeseen complications and make good business decisions. Because it provides specific and organized information about your company and how you will repay borrowed money, a good business plan is a crucial part of any loan application. Additionally, it informs sales personnel, suppliers and others about your operations and goals.

Before you begin writing your business plan, consider four core questions:

1. What service or product does your business provide and what needs does it fill?
2. Who are the potential customers for your product or service and why will they purchase it from you?
3. How will you reach your potential customers?
4. Where will you get the financial resources to start your business?

Your plan will serve three basic purposes: communication, management and planning.

1. As a communication tool: it is used to attract investment capital, secure loans, hire employees and assist in attracting strategic business partners. The development of a comprehensive business plan shows whether or not a business has the potential to make a profit. It requires a realistic look at almost every phase of business and allows you to show that you have worked out all the problems and decided on potential alternatives before actually launching your business.
2. As a management tool: the plan helps you track, monitor and evaluate your progress. It is a living document that you will modify as you gain knowledge and experience. By using your business plan to establish timelines and milestones, you can gauge your progress and compare your projections to actual accomplishments.
3. As a planning tool: the business plan guides you through the various phases of your business. A thoughtful plan will help identify roadblocks and obstacles so that you can avoid them and establish alternatives. Many business owners share their business plans with their employees to foster a broader understanding of where the business is going.

What goes into a business plan? The body can be divided into four distinct sections:

1. Description of the business
2. Marketing plan
3. Finances
4. Management

Addenda should include an executive summary, supporting documents and financial projections.

Once you have completed your business plan, review it with a friend or business associate. When you feel comfortable with the content and structure, review and discuss it with your banker. The business plan should be a flexible document that can change as your business grows.

This material is from the Small Business Administration's Business Start-up Advisor.

Learn more about running a business through these AMA seminars:

• Fundamentals of Finance and Accounting for Nonfinancal Managers
• Performance Measures for Your Business: How to Determine and Measure What Really Counts