Are You Ready to Start a Business?

Every now and then, inspiration strikes. Someone will come to the conclusion that the corporate 9-to-5 job is choking their creativity and ability to advance further in life and will ultimately decide to strike out on their own. If you're that person, we'd like to be the first to issue you whole-hearted 'congratulations;' but be sure to read on before you take the leap.

Starting a business is not an easy task that can be accomplished and made successful overnight. There are a number of things that you must carefully consider before you can begin the process; that is, if you want to do it right. Here's an abbreviated list:

Business planning

Every venture, no matter how small, needs a plan. A business plan will help you to objectively consider what you're going to do, where you'll be spending operational money for it, how you plan to make a profit from it, and all the details that relate to running a business. Having it all on paper often makes it easier to put into a proper perspective.

Among the items that should be listed in your business plan are the start-up costs. What is it really going to take to get things up and moving? This list may turn out to be longer than you'd hoped, but try not to miss anything no matter how small, as it's very important to know just what you're going to need to become operational.

How do you expect the organization's cash flow to work? This is one of the most fundamental weaknesses of new businesses. While you may think that you have a sure thing and money will be beating down the door as soon as you open your business, you must remember that sales don't necessarily translate into ready cash right away. For instance, just because you have a sales agreement with someone doesn't mean that they won't be slow to pay (or change their mind altogether). Some contracts may not be completed for 60-, 90-, 120 days or even more. You need to know how you're going to make it until the money actually starts showing up in your hands. You'll also need to think of how your profits will be utilized. In addition to any outstanding bills you may owe, you should plan for marketing strategies and other forms of reinvestment to help grow your business.

Once you have all this information on paper, look it over carefully. This is a time to assess your business plan and make sure you know what it's going to take to make it work.

Saving and borrowing money

Another extremely important thing that you're going to need before starting your business is money. If you're planning to have an office or storefront, you'll need capital to acquire that space. Additionally, what assets will your business require in order to operate? You may need to buy or lease office equipment, computers, machinery, and supplies to keep those things running. Thought about furniture? Whether it's for you, your employees or your customers, you may need tables, counters, chairs and any other number of furnishings.

Then there are operating expenses. These may include utilities, rent and any other recurring expenses your operation generates. Most businesses don't make money right away so you should have a number of months of financing on hand to ensure that you can keep things going until you begin seeing positive results. And, don't forget that you're also going to need enough money to pay employees (if you have them), including yourself, for the first few months.

If, by now, you're thinking that there's no way you'll be able to save enough cash for all of that, you're not alone, and you're probably right. Most people can't put that kind of money away very quickly. While you should save as much as you can, you should also explore other options for getting the capital you'll need to hit the ground running. Loans may be available through banks, venture capitalists or other potential business partners, the Small Business Administration or even family members and friends.

The total amount of money you'll need on hand should be enough to pay for at least a few months to a year of loan payments as well as your living expenses. That way, you'll be able to make your loan payment every month, and the lending institution will be more comfortable with your situation. You'll also be able to take care of your necessities, such as keeping a roof over your family's heads, so that you can continue to run your business.

Keep the budget tight

While your ultimate inner image of your business may be huge, you need to start as small as you can. In that manner, you'll have fewer expenses (and headaches) to deal with initially. Many people begin their businesses in their homes to save on overhead costs. And will you really need employees at first? While it might be nice to imagine yourself just kicking back in your big office while others do the work for you, that will be quite an expense in itself. On top of that, you're going to have to create the business in order to teach others how to run it. In the beginning you may be better served doing it all yourself.

Liability

If you start a small business that's a sole proprietorship, not only will your business be liable for any losses, but so will you personally as well. You might, therefore, consider creating a corporation or limited liability company. By doing this, you'll be legally separating your personal financial situation from that of the business. Then, if your business doesn't do as well as you hoped, you won't have to be concerned about losing everything you have in addition to the business. Without such liability protection between you and your company, creditors might be able to come after your personal assets to pay off the business's debts.

While taking on the challenge of running your own business may seem like a dream come true, there are many important financial and legal details that must be considered. Don't neglect them. By taking care of first things first, you'll be assuring yourself of the best chance to see that dream come to life, and you'll be very glad you did.

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