The Challenges of Starting a Business (Chap. 5)

Financial risk

The financial resources needed to start and grow a business can be extensive, and if things don't go well, you may face substantial financial loss. In addition, you'll have no guaranteed income.

What Is a "Small Business"?

According to the SBA, it is independently owned and operated, exerts little influence in its industry, and (with minimal exceptions) has fewer than five hundred employees.

Job Creation

The majority of U.S. workers first entered the business world working for small businesses. Today, half of all U.S. adults either are self-employed or work for businesses with fewer than five hundred employees

Getting a Franchise

Under a franchise setup, a franchiser (the company that sells the franchise) grants the franchisee (the buyer) the right to use a brand name and to sell its goods or services. Advantages: You've bought a prepackaged, ready-to-go business that's proven successful elsewhere; you also get ongoing support from the franchiser. Disadvantages: The cost can be high; you have to play by the franchiser's rules; and franchisers don't always keep their promises

what are the things that prevents people from starting a business?

- money - security - competition - lack of ideas

Promotion

Explain your promotion strategy, indicating what types of advertising you'll be using

Advantages of Small Business Ownership

Independence, Lifestyle, Financial rewards, Learning opportunities, and Creative freedom and personal satisfaction

The Nature of Entrepreneurship

Innovation, Running a business, and risk taking

A. Legal Form of Organization

This section identifies the chosen legal form of business ownership: sole proprietorship (personal ownership), partnership (ownership shared with one or more partners), or corporation (ownership through shares of stock)

C. Organizational Structure

This section of the management plan describes the relationships among individuals within the company, listing the major responsibilities of each member of the management team

Goods-Producing Sector

includes all businesses that produce tangible goods. The largest areas of the goods-producing sector are construction and manufacturing. Construction businesses are often started by skilled workers, such as electricians, painters, plumbers, and home builders. These businesses tend to be small and generally focused on local projects. Though manufacturing is primarily the domain of large businesses, there are exceptions

Service-Producing Sector

includes all businesses that provide services but don't make tangible goods. Many small businesses in the service-producing sector are retailers—they buy goods from other firms and resell them to consumers, in stores, by phone, through direct mailings, or over the Internet. Other small business owners in this sector are wholesalers—they sell products to businesses that buy them for resale or for company use. A high proportion of small businesses in this sector provide professional, business, or personal services

Purpose of a Business Plan

tells the story of your business concept, provides an overview of the industry in which you will operate, describes the goods or services you will provide, identifies your customers and proposed marketing activities, explains the qualifications of your management team, and states your projected income and borrowing needs

Ownership Options

you can become a small business owner in one of three ways— by starting a new business, buying an existing one, or obtaining a franchise. Let's look more closely at the advantages and disadvantages of each option

Running a business

Entrepreneurship means setting up a business to make a profit from an innovative product or process

innovation

An entrepreneur offers a new product, applies a new technique or technology, opens a new market, or develops a new form of organization for the purpose of producing or enhancing a product

Creative freedom and personal satisfaction

As a business owner, you'll be able to work in a field that you really enjoy, and you'll gain personal satisfaction from watching your business succeed

Learning opportunities

As a business owner, you'll be involved in all aspects of your business

Independence

As a business owner, you're your own boss

lifestyle

Because you're in charge, you decide when and where you want to work

Mission Statement and Core Values

Declaration of your mission statement, which are fundamental beliefs about what's important and what is (and isn't) appropriate in conducting company activities

Target market

Describe future customers and profile them according to age, gender, income, interests, and so forth. If your company will sell to other companies, describe your typical business customer

Executive Summary

One- to three-page overview

Financial Plan

Report on the cash you'll need for start-up and initial operations, proposed funding sources, and means of repaying your debt

Risk taking

Risk means that an outcome is unknown. Entrepreneurs, therefore, are always working under a certain degree of uncertainty, and they can't know the outcomes of many of the decisions that they have to make

Pricing

State the proposed price for each product. Compare your pricing strategy to that of competitors

Appendices

Supplemental information that may be of interest to the reader

What Small Businesses Do for Big Businesses

Small businesses tend to foster environments that appeal to individuals with the talent to invent new products or improve the way things are done. They typically make faster decisions, their research programs often are focused, and their compensation structures frequently reward top performers. Small firms supply many of the components needed by big companies. They also provide large firms with such services as accounting, legal, and insurance, and many provide outsourcing services to large companies—that is, they hire themselves out to help with special projects or handle certain business functions. Small companies (such as automotive dealerships) often act as sales agents for the products of large businesses (for example, car makers)

Help from the SBA

The SBDC (Small Business Development Centers) matches business people needing advice with teams of retired executives who work as volunteers through the SCORE program

The SBA suggests that you assess your strengths and weaknesses by asking yourself a few relevant questions:

- Am I a self-starter? - How well do I get along with different personalities? - How good am I at making decisions? - Do I have the physical and emotional stamina? - How well do I plan and organize? - Is my drive strong enough? - How will my business affect my family

what are the question you should ask your self before you start a business?

- Should I start a business? - What are the advantages and disadvantages of starting a business? - How do I come up with a business idea? - Should I build a business from scratch, buy an existing business, or invest in a franchise? - How do I go about planning a business? - What steps are involved in developing a business plan? - Where would I find help in getting my business started and operating it through the start-up phase? - How can I increase the likelihood that I'll succeed?

Why Start Your Own Business?

- To be your own boss - To accommodate a desired lifestyle - To achieve financial independence - To enjoy creative freedom - To use your skills and knowledge

Questions to Ask Before You Start a Business

- What, exactly, is my business idea? Is it feasible? - What type of business is right for me? What industry do I want to get into? Do I want to be a manufacturer, a retailer, or a wholesaler? Do I want to provide professional or personal services? Do I want to start a business that I can operate out of my home? - Do I want to run a business that's similar to many existing businesses? Do I want to innovate—to create a new product or a new approach to doing business? - Do I want to start a new business, buy an existing one, or buy a franchise? - Do I want to start the business by myself or with others? - What form of business organization do I want?

how could you used the internet to promote or sell your products?

- Will your company have a Web site? Who will visit the site? - What will the site look like? What information will it supply? - Will you sell products over the Internet? - How will you attract customers to your site and entice them to buy from your company?

Small Business Administration (SBA)

A federal agency that provides services to small businesses and new entrepreneurs

Innovation

According to the SBA, small companies develop more patents per employee than do larger companies. During a recent four-year period, large firms generated 1.7 patents per hundred employees, whereas small firms generated an impressive 26.5 patents per employee. Over the years, the list of important innovations by small firms has included the airplane and airconditioning, the defibrillator and DNA fingerprinting, oral contraceptives and overnight national delivery, the safety razor, strobe lights, and the zippe

Description of Proposed Business

Brief description of the company that answers such questions as what your proposed company will do, what goods or services it will provide, and who its main customers will be - What will your proposed company do? Will it be a manufacturer, a retailer, or a service provider? - What goods or services will it provide? - Why are your goods or services unique? - Who will be your main customers? - How will your goods or services be sold? - Where will your business be located?

Why Do Businesses Succeed?

Business owners face numerous challenges, and the ability to meet them is a major factor in success (or failure). As a business owner, you should do the following: 1. Know your business. Successful businesspeople are knowledgeable about the industry in which they operate, and they know who their competitors are. 2. Know the basics of business management. To manage a business, you need to understand the functional areas of business—accounting, finance, management, marketing, and production. 3. Have the proper attitude. You should believe in what you're doing and make a strong personal commitment to it. 4. Get adequate funding. Plan for the long term and work with lenders and investors to ensure that you'll have sufficient funds to get open, stay open during the start-up phase, and, ultimately, expand. 5. Manage your money effectively. You need to pay attention to cash flow—money coming in and money going out—and you need to know how to gather the financial information that you require to run your business. 6. Manage your time efficiently. You must develop time-management skills and learn how to delegate responsibility. 7. Know how to manage people. You need to develop a positive working relationship with your employees, train them properly, and motivate them to provide quality goods or services. 8. Satisfy your customers. Commit yourself to satisfying—or even exceeding— customer needs. 9. Know how to compete. Find your niche in the marketplace, keep an eye on your competitors, and be prepared to react to changes in your business environment.

Why Do Businesses Fail?

Businesses fail for any number of reasons, but many experts agree that the vast majority of failures result from some combination of the following problems: 1. Bad business idea. Like any idea, a business idea can be flawed, either in the conception or in the execution. 2. Cash problems. Too many new businesses are underfunded. 3. Managerial inexperience or incompetence. Many new business owners have no experience in running a business, and many have limited management skills. 4. Lack of customer focus. Some owners fail to make the most of a small business's advantage in providing special attention to customers. 5. Inability to handle growth. When a company grows, some owners fail to delegate work or to build an organizational structure that can handle increases in volume.

Goods, Services, and the Production Process

Description of the goods and services that you'll provide in the marketplace; explanation of how you plan to obtain or make your products or of the process by which you'll deliver your services - How will products be designed? - What technology will be needed to design and manufacture products? - Will the company run its own production facilities, or will its products be manufactured by someone else? - Where will production facilities be located? What type of equipment will be used? - What are the design and layout of the facilities? - How many workers will be employed in the production process? - How many units will be produced? - How will the company ensure that products are of high quality?

Global Issues

Description of your involvement, if any, in international markets

Marketing

Description of your plans in four marketing-related areas: target market, pricing, distribution, and promotion

Distribution

Explain how your goods or services will be distributed to customers. Indicate whether they'll be sold directly to customers or through retail outlets

disadvantages of Small Business Ownership

Financial risk, Stress, Time commitment, and Undesirable duties

Financial rewards

In spite of high financial risk, running your own business gives you a chance to make more money than if you were employed by someone else

Sections of the Business Plan

In your business plan, you make strategic decisions in the areas of management, operations, marketing, accounting, and finance. Developing your business plan forces you to analyze your business concept and the industry in which you'll be operating. Its most common use is persuading investors and lenders to provide financing

Management Plan

Information about management team qualifications and responsibilities, and designation of your proposed legal form of organization

Industry Analysis

Short introduction to the industry in which you propose to operate. - How large is the industry? What are total sales for the industry, in volume and dollars? - Is the industry mature or are new companies successfully entering it? - What opportunities exist in the industry? What threats exist? - What factors will influence future expansion or contraction of the industry? - What is the overall outlook for the industry? - Who are your major competitors in the industry? - How does your product differ from those of your competitors?

Time commitment

Running a business is extremely time-consuming. In fact, you'll probably have less free time than you'd have working for someone else

Why Are Small Businesses Important?

The nearly twenty-seven million small businesses in the United States generate about 50 percent of our GDP. They also contribute to growth and vitality in several important areas of economic and socioeconomic development. In particular, small businesses do the following: - Create jobs - Spark innovation - Provide opportunities for women and minorities to achieve financial success and independence

Starting from Scratch

This is the most common—and riskiest—option. Advantage: You start with a clean slate and build the business the way you want. Disadvantage: It's up to you to develop your customer base and build your reputation

Buying an Existing Business

This option is not as risky as starting a business from scratch, but it has some drawbacks. Advantages: You'll already have a proven product, current customers, active suppliers, a known location, and trained employees. Disadvantages: It's hard to determine how much to pay for a business; perhaps the current owners have disappointed customers; maybe the location isn't as good as it used to be

B. Qualifications of Management Team and Compensation Package

This part of the management plan section provides information about the qualifications of each member of the management team. Its purpose is to convince the reader that the company will be run by experienced, well-qualified managers. It describes each individual's education, experience, and expertise, as well as each person's responsibilities. It also indicates the estimated annual salary to be paid to each member of the management team

differences between small business and entrepreneurship

Though most entrepreneurial ventures begin as small businesses, not all small business owners are entrepreneurs. Entrepreneurs are innovators who start companies to create new or improved products. In contrast, many people start businesses for the purpose of providing an income for themselves and their families. This type of businesses is sometimes called a "lifestyle business."

Undesirable duties

You'll be responsible for either doing or overseeing just about everything that needs to be done, and you'll probably have to perform some unpleasant tasks, like firing people

Stress

You'll have a bewildering array of things to worry about—competition, employees, bills, equipment breakdowns, customer problems

Industries by Sector

is a group of companies that compete with one another to sell similar products. There are two broad types of industries, or sectors

what is the key with coming up with a business idea?

is identifying something that customers want. Your business will probably survive only if its "purpose" is to satisfy its customers—the ultimate users of its goods or services