Have you ever thought about starting your own business? Well many people think about it, but most never even start because they are afraid of failure. In this post, I will share some tips about starting a business, describe the components of a business plan, share the ownership structures, discuss financing options, and divulge why businesses often fail. In addition to this article, I will follow-up with other articles that further delve into these topics. All of these points are taken directly from my personal business experience, educational background as an accountant, and business instructor. Need to Know Preparation and research is key when starting a business. For example, you will need to research your potential market and you must know the location of your business. Additionally, you will need to choose a business name, register your business, decide if you will hire employees, prepare a business plan, and you will need to arrange financing. But most importantly, you will need to network, network, network! Ownership Structures When looking at ownership structures it is important to determine what is going to meet your personal and professional needs. For this piece, we will look at sole proprietorships, partnerships, and corporations. An important thought to keep in mind is what you plan to do with your business as far as growth and expansion. However, when we look at sole proprietorships, there is unlimited personal liability. More specifically, this means that an individual is responsible for the debt and obligation of their business. It also means that you keep all the profits from the business. Another type of business structure is the partnership— an agreement between two or more people that is protected by a partnership agreement. Revenues in this type of business are shared according to what the partners agree upon. Whenever you look at a partnership, as far as the structures, the two main types of partnerships are general or limited. Finally, the last business structure I will discuss is the corporation. In a corporation, one or more people can form a private corporation. The liability of a corporation is limited because when you file your articles of incorporation, it is like you are creating a separate person or entity.
Business Plan Many entrepreneurs say that a business plan is their roadmap to success. Within a business plan, you map goals and strategies, so that you have a clear picture of what our business needs in order to thrive. One component of a basic business plan is a business profile. In the profile, you introduce your business and provide important information about your business structure, key principles, professional advisors, and financial history. The basic business plan also includes a market analysis, business assessment, objectives, and strategies. Another vital part of the business plan is the financial plan. Within the financial plan, you should include a balance sheet, income statement, cash flow forecast, and personal financial statements. Keep in mind that the business plan is for potential investors and possibly bankers and/or loan officers. Financing your Business There are two main ways to finance your business: Equity financing and debt financing. Equity financing is accomplished by utilizing your savings or investors. More specifically, equity financing can come from personal savings accounts, money from friends or relatives, and the government. At this point, some people might say: “Why should I invest in my own business?” Some reasons include: 1) the cost of getting funds are minimal 2) you’re more likely to get a loan with adequate equity in your business, and 3) businesses that have adequate equity are more likely to succeed. On the other hand, debt financing can come in the form of a line of credit, credit cards, supplier credit, business term loans, leasing, and also government programs, such as small business grants. However you decide to finance your business, the importance should be placed on investing in yourself first, over borrowing money through debt financing. Common Reasons Businesses Fail Businesses fail for a variety of reasons. I won’t go into every reason, rather I will discuss the most common that occur. First, a business might fail because it is undercapitalized, which is a business with too much debt and low cash flow. Second, a business might expand too quickly and there may be improper planning. Third, an owner might mismanage the business. Fourth, the entrepreneur may offer products or services that nobody wants, which is an indication of inadequate market research. Fifth, a business might not be ready to adapt to the changing environment, such as a business that is not ready for online sales. Sixth, an entrepreneur might not be able to control costs such as overhead, fixed costs, variable costs, or even cost of goods sold. Lastly, creating products or services that do not meet the specific needs of your customers or clients. While there are several reasons, each of them can be adjusted or planned for whenever you are drafting your business plan. I once read that a failure to plan is planning to fail— so be sure to account for each of these whenever you are creating a business plan. In summary, starting a business can be a difficult and challenging process, but I outlined numerous ways you can start to plan for success. I briefly discussed some of the components you need to know to start a business, shared about the three business structures (sole proprietorships, partnerships, and corporations), and discussed some of the components of a business plan (business profile, marketing plan, and financial plan to name a few). I also explained the debt and equity financing of a business. And lastly, I highlighted six reasons why businesses fail. I know this is a lot to consider, but the only way you can succeed is if you go for it. In fact, the biggest reason that most businesses fail is because an individual fails to start it. You will never know until you try.
Edited by Jordan A. Johnson (Jordan is a graduate of NYU and Harvard). If you need professional editing, please contact me at pd_three@hotmail.com and I can connect you.