6-3 Starting a Small Business THE BUSINESS DECISION The procedures followed to start a business will often determine whether it will be successful.

An Idea Plus Experience Every business begins with an idea Business ideas come from many sources Hobbies, interests, and business experience Books and magazines suggest new opportunities including franchises

You shouldn’t consider starting a business without working for a small business Several years of training in a range of business operations will prepare you to be an owner Having responsibility for making decisions and opportunities to be the manager are key.

Right Place and Time Most retail businesses need good customer traffic If the business is not easy to find or requires a great deal of travel time, many people will stay away A wholesaler needs easy access to manufacturers where products are obtained for sale Manufacturers must be located in an area with access to the required raw materials Transportation systems must be easy to reach to distribute finished materials

Team Approach Many small business owners are quite independent. A business is not easy to run without the help of others Employees must be chosen carefully for their teamwork abilities. In addition to employees, owners will need assistance from people with specialized knowledge. Bankers, lawyers, and accountants

Preparation and Research The most important step in starting a business is preparation. Includes having enough information to make good decisions Time spent studying information before the business is started will save time and avoid later problems

Information is needed about: Customers Competitors Important operations Government regulations

This information is available through: Libraries Colleges Small business assistance centers Sometimes, the owner will have to do further research to collect current data.

Checkpoint>> Why is it important to use a team approach when starting a new business?

DEVELOPING A BUSINESS PLAN When successful businesses are compared to those who have failed, one factor stands out as the most important difference. The owners of a successful business develop and follow a business plan.

What is a Business Plan? Business plan- written description of the business idea and how it will be carried out Key features include: General description of the company Description of products / services sold Market analysis (demand, customers, and competition) Financial plan

Most business plans are developed for one year and updated the next year By developing a plan, the owner is forced to think about important activities, the amount of time they will take, and their cost. The plan serves as a guide to keep the business on track.

Steps in Developing the Business Plan The business owner is in charge of developing the business plan. The most popular use of business plans is to persuade investors and banks to finance the venture.

Gather and review information Step 1 Gather and review information Review other business plans and study information on the activities and financial performance of similar businesses

Develop strategic alternatives Step 2 Develop strategic alternatives Alternate plans for marketing, staffing, and financing

Each section of the business plan should be written. Step 3 Each section of the business plan should be written. Several sections for the description of the business Before the plan is completed, the owner should have business experts review and offer advice for strengths and weaknesses of the plan.

Checkpoint>> What are “strategic alternatives” in a business plan?

FINANCING THE SMALL BUSINESS A new business with a good product or service may run out of money before becoming profitable. Several years of operation are required before most new businesses can earn a profit. Finding adequate financing is a key step in starting and running a business.

Types of Financing Start-up financing- amount of money needed to open the business Includes the cost of buildings, equipment, inventory, supplies, and licenses Short-term financing- money needed to pay for current operating activities Less than one year Often for one or two months Long-term financing- money needed for the main resources of a business that will last for many years Land, buildings, and equipment

Sources of Financing Finding the money needed may be the most difficult part of starting a business. Comes from a mixture of owner-supplied and borrowed funds. In a proprietorship, one person will supply the money. In most partnerships, each partner will contribute. In a corporation, shareholders own the business and contribute the money. Borrowed funds are obtained through loans from banks, other financial institutions, or other people.

Checkpoint>> In addition to owner-supplied capital, what are several other sources of financing for small businesses?

6-3 ASSESSMENT