Basic Considerations in Starting A Small Business
This document walks you through a series of questions to help you decide if your idea can work for you. Your answers may lead may lead to more homework.
Early points for consideration
- Is there a market for my product/services?
- How much competition is already present?
- Can I sell the products/services at a competitive price?
If initial evaluation looks favorable:
- Determine equipment needs and costs. Can equipment be rented or acquired on a lease/purchase agreement basis?
- Determine building needs. How important is location? Is there a need for store front sales and storage capabilities as well as manufacturing?
- Schedule operating costs (start up and ongoing) which will help to determine, when combined with equipment related financing costs, how much you will have to charge for your products/services. It will also allow you to determine how many units you have to sell to (1) break even, and (2) provide an adequate return.
If things continue to look favorable:
- Determine how much financing is needed (recognizing financing needs during early stages of operation). Can financing be provided internally or is there a need for outside financing? Remember outside financing sources will require a substantial contribution from the owner (25% or more, dependent upon type of business).
- Determine what type of business entity you will be (sole proprietor, partnership, LLC, or corporation).
- Start working on a business plan. The work done previously in assembling various costs will be rolled into the financial portion of the plan. There are various websites that can provide guidelines in putting together a plan. Establishing a marketing plan will be a part of the overall planning process.
- Determine if special licenses or permits are needed.
- Explore potential names for the business.
- After the initial work has been completed on the business plan, meet with a business banker.
If arranging for financing is successful:
- Select an accountant with a business accounting background. He/she can be of major help in preparing and filing necessary start-up documents, as well as providing ongoing assistance.
- Select an attorney experience in business dealings.
- Set up a business banking account.
- Obtain federal and state identification numbers.
- Register business name with local and state authorities.
- Obtain business insurance.
- Select and implement a financial record keeping system. Dependent upon the complexity of the business, this can range from a manual system to a full-blown automated system. Remember: Business related costs incurred prior to incorporation are eligible to be claimed as business expenses!
SCORE can provide major assistance in the above areas after the initial feasibility work has been completed. Even if outside financing is not needed, working through at least the financial portion of preparing a business plan can be beneficial in two ways: (1) helping to determine pricing and break even points, and (2) allowing actual financial data to be compared to projections to see how well the business is doing.