|Starting a new business? Here is the information you need to gather make a wise decision. Entity choices, set-up, and how to get going in your new business.|
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If you have the right answers to most of these questions, starting a business, is a good idea.
Do you have all the skills that it takes to produce the product/service? What additional training will be required? What will you sell and why do customers need your product/service? What competitive advantage do you have? Why should they buy your product now rather than put off buying your product. Who are your customers? What is the potential volume of business in the market you have chosen? How many customers will you have? If there are only a few, what will happen if one customer pulls their business & goes to a competitor or goes out of business? What policies will you put into place to avoid being too dependent of just a few customers? Can you produce a level of service that will satisfy your customer at the price you command? Can you get the job done timely, what if business increases at too fast a pace, how will you continue with quality and deliver timely or how will you slow down the growth? Are you willing to put in the extra hours when business demands it? What if for the first few years, you are required to do all the extra work until the business can afford additional employees?
Competition and business location
What is the competition doing? Who is your competition? Why should the customer buy the product from you rather than your competitors? Is a new industry seeking to gain access to your market and fulfill need? Are there any new technologies in the throws of being developed that might change your market? What is existing competitions pricing strategy? What do your competitors think about location? Are they paying higher rents for a better location? If so, why? Are they successful? How long have they been in business at their location? What to competitors say about the industry? What are their complaints? Have you gone on-line to the groups on Google or groups on Yahoo to talk to your competitors? If you will be renting, find Real Estate Agents who work in commercial real estate and have been in this field awhile. Find out if the zoning laws will allow you to open in your desired location.
Talk to several Insurance Agents (donít let them oversell to you, find out what the bare minimum is to begin business. Do you need liability insurance? Talk to your attorney, if the business incorporated, LLC, LLP what will be lost if you are sued in the early years of the business? The cost of defending against a suit is high, would a policy that offers the bare minimum make sense? Do you belong to a trade organization that will offer insurance at a better price. Learn more about business insurance.
How do you differentiate your product/service against the competitor, How will you win market share away from your competitor? What is your cost of picking up new customers? Have you worked that cost into your financial projections? What marketing works and what does not? How do you attract new business/customers to your business? What marketing research have you done to add weight to your assumption? Are you sure that it will work?
How will you split your beginning investment in the business between marketing , office assets, inventory, rent? Which of these should be the most important and why? Which of these will increase sales? How important is location to sales volume?
Avoiding Loss in Business - Calculate the break-even point
Do you have a pricing strategy that is competitive?, At what price break will an increase in sales occur? Can you make money at that pricing level? What volume of sales must be realized to avoid loss at that price? Do you know what sales quantity, price policy, overhead expense level and outlay for cost to produce or buy must be achieved in order to break even? If any of these factors change, do you know what actions must be taken to compensate for the decrease in net income, how can you avoid losses? How soon do you hope to meet the break even point? Do you have the money to continue in business for an additional year should your assumption be inaccurate? Is it standard practice when opening a business of your type to lose money before earning a profit?
Terms offered to customers
Will you sell on credit? What are your credit policies? What financial information must a prospective customer provide before you will sell on credit? Will you require a signed personal guaranty from the customerís CEO before approving an open account orders? Will you apply credit limits until you know have a payment history with the customer. Is shipping COD or accepting credit cards a possibility? Does the customer have a solid track of running a profitable business? Will you require annual financial updates to maintain an open account? (QuickBooks/Intuit have hooked up with Dun&Bradstreet to provide inexpensive credit reports)
Watch your cash stockpile or dwindle
Is there an additional source of financing should the business require it? Have you prepared a cash flow projection (future income based on budgeted sales less anticipated expenses at that sales volume? ) Have you looked at the availability of cash, should sales skyrocket above estimated (and you sell on credit with 30-75 day terms), what if sales do not meet your anticipated levels? Have you included a cushion for unanticipated expenses, opportunities? What sources have you lined up should you need more money?
Business compliance issues
What type of organization (entity) is right for you, a corporation, S corporation, LLC, LLP etc? What tax forms will you be required to file, how often, who will file and what will it cost to complete the filings? of filing? What estimated taxes will be required? What government agencies must you register the business with? Are there any licenses required? Any permits required?
How do you propose to get this knowledge? Can you afford to pay for this knowledge? Should you try to acquire this knowledge on your own? What are the risks (penalties assessed, lost revenue) if you fail to acquire the all the knowledge needed? Do you have any knowledge of bookkeeping? see Entity choices for small business to get you started.
Assessing your success
Do you know what reports must be generated from the bookkeeping to see if your goals, budgets and objectives are being reached? How often should you review these reports? What stopgaps need to be implemented should your goals/plan not be achieved as anticipated? At what point should your reevaluate whether you should continue in this new business? What is the maximum amount of money you are willing to risk?
Do you have partners? Are they active or financial investors. What are your expectations from each owner in terms of personal time devoted, money invested, responsibility to generate sales, make contacts, produce a quality product/service. What compensation will be provided to each owner? What perks? If each owner independently wrote down on a piece of paper answers to these questions, how wide would the gap be? If one owner contributes more than he/she initial intended in terms of time or money or results to operations, and another owner contributes less than expected, is there a formula for compensation or ownership% adjustments? Have you appointed a mediator now, before any problems arise, to help in dispute settlements? Is there an exit strategy for one or more partners that no longer want to participate in the business? How would the payout be calculated and for what length of time? What if one owner dies? Can the business continue? Will there be a period of time where the business will suffer until a comparable solution to the loss in skill-set has been found? How will the business cope financially with such an issue? Does the family of the descendent inherit the % of ownership? Is life insurance a means for funding a buyout of the heirs? Should this purchase of insurance be an immediate priority? Is there a signed agreement now stating that life insurance must be purchased within a set period of time (3 years?) What happens if a partner becomes uninsurable due to illness during that period of time? What happens if one owner dies during that period of time? Purchase " The Partnership Book" by Attorneys Ralph Warner & Denis Clifford for a comprehensive guide including partnership templates, provides step by step to do's for negotiating an agreement between partners. Its very easy to jump into business with someone you like and respect. Unfortunately, its commonplace for partners to move on to other endeavors. This book helps identify what must be included in an agreement and recommends ways to easily come to terms with your partner. At the very least read this article published by American Express
Buying a Business
Why are the sellers selling? What are you purchasing the stock of the selling organization or just the assets? Are you aware of the significant difference in the tax and legal consequences between the two options? Can you payoff the seller within 5 years of purchase using the profits from the business (and still take enough to pay for food, clothes, insurance, & an apartment rental)? Are you paying too much? Are you basing a purchase price on historical revenue? Did you know sellers can inflate sales on his business income tax return for several years, paid the tax dollars , to reap a huge purchase price from an unwary buyer. Have you looked at the sellers standard of living for the past 5 years? Have you looked at the business bank statements to see for yourself how much money has been deposited into the account? Has the seller owned the business for five or more years? Have you seen the sellers personal and business tax return for the past 3 years? Do they seem to say the same things about compensation to the owner? If the seller has not owned the business for over 5 years. Have you worn a devilís advocate hat to see if you can shoot holes through the sellers story as to why they are selling? Are you certain the purchase price reflects only the sellers sweat equity? Are you paying the seller for an opportunity to turn a failing business around? Should the price then be paid only if you can achieve this feat? Find answers.
Can a business be sold?
Does the seller possess any
special knowledge or personality that will not be able to be transferable
to the new owners? Is the payout for the business predicated on % of the
existing business being retained with the new owners? What do the existing
customers say about the business? What are their reasons for patronizing
the business? Is the economic climate changing?
Get educated visit our best of the web business resource directory. Spend time to get the answers. QBalance.com has devoted a page on its website containing comprehensive information about starting a small business that will speed up your quest for answers. Then seek professional advice. Consult with Attorneys & Accountants (QBalance can help you get your accounting software up and running and can help you sort through which choices will be best for your new business. Our firm is dedicated toward teaching our customers to be self-sufficient in many areas. We also teach our customers to avoid disaster by helping them recognize when it is important to consult with experienced professionals.)