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T u r n i n g p o i n T s n
Starting a Business
Turning Points 2 Starting a Business
Questionsn Do you have what it takes?
n Will people take you seriously?
n Can you think in business terms?
n Do you have a good business proposition?
n Whom can you talk to?
n Should you talk to your employer?
n Do you have a business plan?
n How much money will you need?
n Will you need financing?
n Do you understand cash flow?
n Can you keep good records?
n Are you a marketer?
n Can you say “no”?
n Do you have a “Plan B”?
Starting a business can be compared to
jumping off a swing at the high point of its arc.
As you launch your body off the seat, you’ll
feel the joy of flying free. The same is true
when you start a business: There’s no time
clock, no production quota, no manager. It’s
just you and the feel of the wind.
And then, gravity sets in. All too quickly, you
remember that every “up” has a “down”
as the ground rushes nearer. In business,
the “down” might be a lack of time, lack of
funding, or lack of customers.
The highs and lows of establishing a
business will test your temperament, your
skills, your finances, and your goals. Figuring
out whether you’re ready to thrive as a small-
business owner starts by asking yourself
some tough questions.
Do you have what it takes?Business owners are risk takers. If the mere
thought of an uneven relationship between
bills and payments makes you queasy, plan
on perpetual indigestion. But if you enjoy
proving you’re flexible enough to adapt to a
constantly changing environment, you’ll feel
right at home.
Explore your prospects for thriving as a
business owner by considering your ability to:
n Take responsibility. Whether the task is
large or small, it’s up to you to make sure it’s
completed. You may want to concentrate on
big projects, but someone has to make sure
bills are paid, invoices are sent, computer
security software is upgraded, and taxes
are filed. Even if you can afford to hire
employees, you’ll need to pitch in when extra
hands are needed.
n Analyze your options. You must be
able to weigh the possibility of success,
decide whether it’s worth the risk, and then
continually adjust your plan to meet the
needs of the marketplace.
n see the big picture. Business owners
must sometimes give up something—a
client, an opportunity, a day off—to do
what’s right for the business. Can you step
away from your original ideas to pick up on
something new and better?
n Balance work, life, and money. When
business is slow, time will be plentiful
but money will be tight. When business is
booming, money will be plentiful but time
will be tight. Finding balance at work and at
home is a challenge.
n gain support on the home front.
Starting a business can strain a relationship,
especially if you’re a risk taker linked to a
risk-averse spouse or partner who shudders
at the thought of uneven cash flow. Look
for ways to satisfy your spouse’s need for
Make the Move to Small-Business Ownership byDarlaDernovsek
Turning Points 3 Starting a Business
information without overwhelming them with
business worries. Remember that if your
spouse provides financial support, he or she
also should share the rewards of owning a
business.
Will people take you seriously?Earning customers’ trust is easier if you look
and act like someone who can get the job
done. Elements to consider include:
n Background and references. Describe
your background for potential new clients in
professional materials such as a résumé or
brochure. Offer references so new customers
can check your background.
n ‘image’ materials. At a minimum, you’ll
need a professionally designed logo that you
can display on stationery and business cards
to consistently convey your business name
and contact information.
n Appearance. Dress for your audience.
It’s acceptable to dress down when tackling
hands-on tasks, but you must upgrade your
appearance when you meet with clients,
give a presentation, or attend professional
meetings.
n office space. Whether you rent facilities or
work at home, you need appropriate space
and office equipment. Issues to consider
include telephone services, Internet access,
and space to meet with clients if needed.
If you’re part of the roughly half of small
businesses that are home-based, find ways
to separate your personal and professional
space to minimize noise and disruptions.
Also find out if your home business is in step
with zoning requirements.
Can you think in business terms? Separating the personal from the
professional goes beyond your office
arrangements. You’ll also need to:
n understand financial terms and forms.
(More information on financial issues is
offered later.)
n Base decisions on business
considerations rather than personal
relationships. Be prepared to objectively
weigh the pros and cons of any business
decision. In some instances, this may require
Small businesses …n Employ roughly half of all employees working in the private sector.
n Have generated 64% of net new jobs since 1993.
n Continue to rise steadily in number to reach 29.6 million in 2008. About 627,200 new employer firms opened their doors in 2008, while 595,600 firms closed during that year.
Source: Small Business Administration Office of Advocacy
Can you become The Millionaire Next Door?“The Millionaire Next Door” is a research-based bestseller written by Thomas J. Stanley and
William D. Danko that links business ownership and financial affluence. Findings include:
n Self-employed business owners head 18% of American households, or
roughly one of five households.
n Self-employed people are four times more likely to be millionaires
than those who work for others; about two-thirds of millionaires who still are
working are self-employed.
n It’s impossible to predict whether someone is a millionaire based
solely on the type of business owned; the business owner’s character is more
important than the nature of the business.
Turning Points 4 Starting a Business
the ability to disagree respectfully with your
favorite client or even your friend.
n Work with customers having approaches
that differ from your own. You may need
to set aside personal opinions to respond to
your customer’s preferences.
n recognize scams. Check the National
Consumers League for a list of the latest
scams aimed at separating businesses from
their hard-earned money.
n Maintain your integrity. Your reputation
is an invaluable business asset, so you must
protect it even if that means giving up a job
or a customer.
Do you have a good business proposition?You must offer a skill or a service that
others are willing to pay for in the current
marketplace. This is not always as simple as
it seems. You may be selling the world’s best
slingshots, but you’re unlikely to succeed if
the marketplace demands bows and arrows.
To determine whether your business will
thrive in the current marketplace, examine
these factors:
n is there a demand for what you offer?
Ask potential customers if they’d buy what
you’re selling. Talk to colleagues or others
in the same field—but outside your market
area—to learn more about the demand.
Determine who your competitors are and
how they differ from you. Figure out what
your advantage is and make it work for you.
n What do i need to get started? Make
a list of what’s essential now and as your
business grows. Next, figure out what it
will cost and where you can get funding.
Remember to factor in health insurance,
which can be a high-cost item unless
it’s accessible through your spouse’s
employment.
n What are the rules? Check with local,
state, and federal authorities to learn
whether you need permits, registrations, or
licenses. Investigate your tax obligations,
including sales taxes, self-employment
taxes, business taxes, and tax withholding
for employees, if applicable.
n Who’s going to do the work? Can you
handle the workload by yourself, or do you
need to hire employees or outsource some
services? Have a plan in place before you
open your doors.
Whom can you talk to? Talk to those you trust about business
operations, marketing, potential clients, and
options for helping each other out as your
business grows. Remember to be discreet to
avoid announcing your plans prematurely,
especially if you still are working for another
employer.
Get started by talking to these sources:
n Your mentor. If you have business or
personal mentors, share your idea. Ask them
to provide blunt input, then listen closely to
their insights.
n Your spouse. Never assume that your
spouse will support your business start-up.
Instead, discuss the details of your plans
and the impact on your finances.
n Joe worked for a business that contracted with insurance companies to perform emergency repairs to Midwestern homes and businesses. Unhappy with his employer’s questionable business practices, Joe decided to go into business for himself.
Once Joe made the decision to leave, he put together a business plan and began talking to other key employees who might be interested in a new opportunity. All discussions were conducted off-site and on employees’ personal time to maintain the integrity of the new venture.
After Joe resigned from his employer to launch his new venture, he began contacting potential clients, including clients from his former employer. Several key clients followed Joe to his new business, which was profitable within the first year.
“Recognizing the right path and staying on it requires more than luck,” Joe says. “Choose your image and then live it.”
Turning Points 5 Starting a Business
n Your friends. Your friends know your
strengths and weaknesses, so ask them
to speak candidly about your prospects in
business.
n An objective expert. After talking to
people who know you well, seek advice
from more objective sources. One option is
the nonprofit organization SCORE, which
describes itself as “Counselors to America’s
Small Business.” SCORE volunteers are
successful executives and entrepreneurs
who agree to provide free help to small
businesses face-to-face or online.
n Experienced business owners. Talk
to others who have started a business or
are self-employed. Get a list of their best
practices as well as mistakes to avoid.
Your lender. Your credit union business
lender can be an invaluable source of ideas
and information about financial issues.
n potential ‘partners.’ The nature of these
discussions will vary depending on whether
you’re looking for an investor, a co-owner,
or a small business willing to work with you
to tackle larger projects. Get their opinion
about your business possibilities and the
prospect of working together.
n Local business leaders. Leaders from
the Chamber of Commerce and business
organizations can help you understand
the demands of starting a business in your
community, ranging from local business
practices to zoning regulations.
n professional organizations or trade
associations. Use resources provided
by trade associations or professional
organizations in your field to learn more
about business operations.
n Co-workers or business acquaintances
who are potential referral sources.
Even before you’re ready to announce
your business plans, you can ask general
questions about business relationships and
the need for vendors in specific fields. After
your business is launched, contact them
again to seek referrals.
Should you talk to your employer?If you intend to compete with your employer,
stay quiet until you’re ready to leave. If
you’re not pursuing the same customers,
then use your judgment to decide when
to alert your employer to your plans.
Depending on your employer’s needs and
policies, you might be able to continue
working part time while launching your
business. Always protect your reputation
and minimize the potential for hard feelings
by behaving in an ethical manner.
Do you have a business plan? Your business plan is a vital document that
provides a guideline for your launch as well
as credibility for lenders and other experts.
The SBA’s online Small Business Planner
offers excellent information about how to
write a business plan. Another option is
looking for business start-up courses at
your local community college or technical
institute.
Putting up a tentAnnie had a successful marketing career, but she yearned to return to her roots as a writer by pursuing freelance work half-time while raising two sons with her husband, Frank.
Frank insisted her plan would never produce enough income to help pay the family’s expenses. Frank’s construction job required extensive travel, so he underscored his financial concerns when he was on the road by staying in a tent, rather than a motel.
To get Frank out of the tent, Annie agreed to keep working. Meanwhile, she continued talking to experienced writers, potential clients, and business mentors until she could prove to Frank that her idea made financial sense. To ease the transition, she agreed to work half-time while she launched the business.
Within two years, Annie was able to quit her job to concentrate on freelancing. Fifteen years later, she’s still running her own business. Frank burned the tent.
Turning Points 6 Starting a Business
Although length and detail of business plans
vary, your business plan might include these
elements:
n Executive summary
n Market analysis
n Company description
n organization and management
n Marketing and sales management
n service or product line
n Funding needs
n Financials
n Appendix
Once your plan is complete,
remember to review it quarterly
and update it annually to help keep
your business on track.
How much money will you need?Your business plan will help you figure your
financial needs, including how long it will
take for the business to support itself and
generate a profit.
Most small business owners must plan
ahead to cover two types of expenses:
1. Business expenses required to launch
operations and support their growth.
Depending on your business plans, these
may include purchasing supplies and
equipment; paying for fees, licenses and
professional services; and hiring employees
or contractors.
2. personal expenses that must be covered
during the business launch. These include
day-to-day living expenses as well as
expenses that formerly might have been
covered by your employer, such as health
insurance, life insurance, and retirement
savings.
Will you need financing?Chances are good that the answer is “yes.”
In some cases, that financing might come
from private sources, such as personal
savings, a home equity loan, or income
produced by a spouse who is employed full
time. In many cases, business loans will be
required to provide start-up capital.
Many credit unions offer member business
lending services designed to serve small
businesses. Your credit union also may
provide SBA loans or recommend another
lender who offers this service. Finally, credit
unions also offer business deposit services
to handle the money flowing into and out of
your business.
Do you understand cash flow?Cash flow looks at the timing of your
income and expenditures, which determines
whether you have the funds on hand to cover
your obligations.
Monitoring cash flow starts with keeping
track of what must be paid and when, as well
as payments due to your business and when
you can expect to collect them.
Covering the timing gap between revenues
and expenses requires a combination of
savings and access to credit, such as a
business line of credit from your credit
union. Obtaining a business credit card also
may be an option, however, bear in mind
that high interest charges can hobble your
business unless you use the card sparingly
and repay it promptly.
Can you keep good records?Creating a filing and/or computer system to
store your records should be one of your first
tasks. Your system should help you track
information about:
n Expenses, which includes bills payable
Small Business SurvivalAmong new employer firms:
n 69% survive at least two years.
n 51% survive five or more years.
Factors affecting survival:
n Years in business, with the rate of closings declining significantly after four years.
n Access to capital
n Gaining the size required to have employees other than the owner
n The owner’s education level
n The owner’s motivation in establishing the firm
Source: Small Business Administration Office of Advocacy
Turning Points 7 Starting a Business
as well as tracking expenses for specific
business segments.
n invoices, which should include a system
for sending invoices, tracking payment,
and contacting customers when payment is
overdue.
n insurance, including coverage for liability,
property/casualty, life, health, vehicles
or equipment, business interruption, and
workers’ compensation.
n Taxes, including local, state, and federal
obligations as well as tax deductions that
will reduce your tax burden.
n Licenses and permits, which again occur
on the local, state, and federal level.
n Equipment records, which includes
warranties, operating manuals, computer
software, and related issues.
n Client records, which detail the
relationship with a specific client.
n Vendor records, which can ease the
process of ordering supplies or requesting
services.
n professional resources, which provide a
place to save general information for future
reference.
In addition, you’ll need to maintain a
calendar either on your computer or on
paper. This calendar is vital to help you track
deadlines, renewals, payment dates, and
other issues.
Are you a marketer? Marketing is a must. You can’t assume that
clients will come to your door. Instead, you
have to go out and get their attention.
Marketing issues to ponder include:
Product or service: Will you be all things to
all people, or will you serve a specific niche?
Are you willing to reshape your business to
respond to specific opportunities or enter an
emerging market?
Price: What will you charge? Do you intend
to go for quality or quantity? How will you
decide?
Target market: Whom are you going to sell
to? Where are they located? How will you
reach them?
Competitors: Who else offers this product
or service? What sets you apart from them?
Why should customers buy from you instead
of them? How will you deliver that message?
Business strengths: What unique strengths
or talents does your business offer? Are you
willing to develop new products or services
to appeal to a specific market?
Identity: How will you protect your business
name? What legal steps are required?
Issues may range from Web site availability
to trademarks that protect your rights to a
specific name.
Public relations and marketing
communications: How will you reach your
target market? How will you let them know
what you have to offer?
Can you say “no”?Once you launch your business, you will face
a continual stream of information, ideas,
and requests. People from outside your
business will attempt to sell you equipment
and supplies; persuade you to give to their
cause; ask for your support of organizations
or events; seek a share of your marketing
dollars; and even hope to enlist you in a
business scam.
Inside your business, employees will seek
approval for ideas; ask for promotions or
raises; and request vacations. Clients will
beg you to meet unrealistic deadlines, slash
prices, and deliver products or services that
simply don’t exist.
Finally, you’ll have your own desires to deal
with. You might be tempted to take on more
work than you can handle, buy equipment
that you want but cannot afford, or invest
in a new line of business that’s unlikely to
prove profitable.
Learning to say “no” is essential to keep
your business on the right track.
Do you have a “Plan B”? You must be willing to accept the risk that
things may fail to go according to plan. You
may learn that you hate running a business,
find that the market for your product has
disappeared due to new technology, or
simply get an irresistible offer from someone
who wants to buy your business or hire you
as an employee.
As you launch your business, remember
to keep skills and certifications up-to-date
to keep your options open. As soon as
financially feasible, begin addressing your
need for retirement savings so you don’t
fall behind. Build your personal savings
to protect yourself and your family from
business swings.
By taking these steps, you’ll be prepared
when the right opportunity arises, whatever
it may be.
Turning Points 8 Starting a Business
n Entrepreneur.com, the online source of
information and ideas from Entrepreneur
magazine. Call 949-261-2325 for general
information or 800-421-2300 to purchase
start-up guides for entrepreneurs.
n internal revenue service Web
information and publications aimed at
starting and running a small business.
Also check the small business section. Call
800-829-4933 to access toll-free telephone
assistance for businesses.
n Visit the small Business Administration,
and click on “Small Business Planner” or call
toll-free, 800-827-5722.
n sBA office of small Business
Development Centers; the centers provide
management and technical assistance to
small business owners. Call toll-free, 800-
827-5722.
n Business.gov, “The official business
link to the U.S. government.” For more
information, contact the SBA toll-free at 800-
827-5722.
n sCorE, Counselors to America’s Small
Business; call toll-free, 800-634-0245.
n Local and state resources, including:
• Your local community college, which
may offer low-cost courses on starting
a small business.
• Your state’s Department of Commerce
• Your community’s municipal or county
government
• Your community’s Chamber of
Commerce
Useful resources
©2009 Credit Union National Association., the trade association for credit unions in the U.S.