From the Small Business Administration
Owning a business is the dream of many Americans ... starting that business converts your dreams into reality. However, there is a gap between dreams and reality. Your dreams can only be achieved with careful planning. As an entrepreneur, you will need a plan to avoid pitfalls, to achieve your goals, and to build a profitable business.
This checklist is designed to help you get started. It has seven key components:
- Identify Your Reasons
- Self Analysis
- Personal Skills and Experience
- Finding a Niche
- Market Analysis
- Planning Your Startup; and
Each component is comprehensive and is designed to prepare you for self employment. In addition, each component includes an analysis of you responses as well as a menu of supporting resources.
1. IDENTIFY YOUR REASONS
As a first and often overlooked step, ask yourself why you want to own your own business. Check the reasons that apply to you.
- Freedom from the 9-5 daily work routine
- Being your own boss
- Doing what you want when you want to do it
- Improving your standard of living
- Boredom with your present job
- Having a product or service for which you feel there is a demand
Some reasons are better than others, none are wrong; however, be aware that there are tradeoffs. For example, you can escape the 9-5 daily routine, but you may replace it with a 6 a.m. to 8 p.m.
2. A SELF-ANALYSIS
- Are you a leader?
- Do you like to make your own decisions?
- Do others turn to you for help in making decisions?
- Do you enjoy competition?
- Do you have will power and self discipline?
- Do you plan ahead?
- Do you like people?
- Do you get along well with others?
- Are you aware that running your own business may require working 12-16 hours a day six days a week and maybe even Sundays and holidays?
- Do you have the physical stamina to handle the workload and schedule?
- Do you have the emotional strength to withstand the strain?
- Are you prepared if needed to temporarily lower your standard of living until your business is firmly established?
- Is your family prepared to go along with the strains they too must bear?
- Are you prepared to lose your savings?
3. PERSONAL SKILLS AND EXPERIENCE
- Do you know what basic skills you will need in order to have a successful business?
- Do you possess those skills?
- When hiring personnel will you be able to determine if the applicants' skills meet the requirements for the positions you are filling?
- Have you ever worked in a managerial or supervisory capacity?
Have you ever worked in a business similar to the one you want to start?
- Have you had any business training in school?
- If you discover you don't have the basic skills needed for your business will you be willing to delay your plans until you've acquired the necessary skills?
Certain skills and experience are critical to the success of a business. Since it is unlikely that you possess all the skills and experience needed you'll need to hire personnel to supply those you lack. There are some basic and special skills you will need for your particular business.
The questions you responded to are designed to identify the skills you possess and those you lack.
4. FINDING A NICHE — Is Your Idea Feasible?
- Identify and briefly describe the business you plan to start.
- Identify the product or service you plan to sell.
- Does your product or service satisfy an unfilled need?
- Will your product or service serve an existing market in which demand exceeds supply?
- Will your product or service be competitive based on its quality, selection, price or location?
- Do you know who your customers will be?
- Do you understand their needs and desires?
- Do you know where they live?
- Will you be offering the kind of products or services that they will buy?
- Will your prices be competitive in quality and value?
- Will your promotional program be effective?
- Do you understand how your business compares with your competitors?
- Will your business be conveniently located for the people you plan to serve?
- Will there be adequate parking facilities for the people you plan to serve?
6. PLANNING YOUR START-UP
So far this checklist has helped you identify questions and problems you will face converting your idea into reality and determining if your idea is feasible. Through self-analysis you have learned of your personal qualifications and deficiencies and through market analysis you have learned if there is a demand for your product or service.
The following questions are grouped according to function. They are designed to help you plan your business startup.
Name and Legal Structure
- Have you chosen a name for your business?
- Have you chosen to operate as sole proprietorship, partnership or corporation?
Your Business and the Law
A person in business is not expected to be a lawyer but each business owner should have a basic knowledge of laws affecting the business. Here are some of the legal matters you should be acquainted with:
- Do you know which licenses and permits you may need to operate your business?
- Do you know the business laws you will have to obey?
- Do you have a lawyer who can advise you and help you with legal papers?
- Are you aware of:
- Occupational Safety and Health Administration (OSHA) requirements?
- Regulations covering hazardous material?
- Local ordinances covering signs snow removal etc.?
- Federal Tax Code provisions pertaining to small business?
- Federal regulations on withholding taxes and
- Social Security?
- State Workmen's Compensation laws?
Protecting Your Business
It is becoming increasingly important that attention be given to security and insurance protection for your business.
There are several areas that should be covered. Have you examined the following categories of risk protection?
- Accident Liability
Business Premises and Location
- Have you found a suitable building in a location convenient for your customers?
- Can the building be modified for your needs at a reasonable cost?
- Have you considered renting or leasing with an option to buy?
- Will you have a lawyer check the zoning regulations and lease?
- Have you decided what items you will sell or produce or what service(s) you will provide?
- Have you made a merchandise plan based upon estimated sales to determine the amount of inventory you will need to control purchases?
- Have you found reliable suppliers who will assist you in the start-up?
- Have you compared the prices quality and credit terms of suppliers?
- Are you prepared to maintain complete records of sales income and expenses accounts payable and receivables?
- Have you determined how to handle payroll records tax reports and payments?
- Do you know what financial reports should be prepared and how to prepare them?
A large number of small businesses fail each year. There are a number of reasons for these failures but one of the main reasons is insufficient funds. Too many entrepreneurs try to start and operate a business without sufficient capital (money). To avoid this dilemma you can review your situation by analyzing these three questions:
- How much money do you have?
- How much money will you need to start your business?
- How much money will you need to stay in business?
Use the following table (personal financial statement) to answer the first question:
Personal Financial Statement
____________, 20 ___
- Cash on hand
- Savings account
- Stocks, bonds, securities
- Accounts/notes receivable
- Real estate
- Life insurance (cash value)
- Automobile/other vehicles
- Other liquid assets
- Accounts payable
- Notes payable
- Contracts payable
- Real estate loans
- Other liabilities
The answer to the third question (How much money will you need to stay in business?) must be divided into two parts: immediate costs and future costs.
Table 2 — START-UP COST ESTIMATES
- Decorating, remodeling
- Fixtures, equipment
- Installing fixtures, equipment
- Services, supplies
- Beginning inventory cost
- Legal, professional fees
- Licenses, permits
- Telephone utility deposits
- Advertising for opening
- Unanticipated expenses
From the moment the door to your new business opens a certain amount of income will undoubtedly come in. However this income should not be projected in your operating expenses. You will need enough money available to cover costs for at least the first three months of operation.
Table 3 (estimate of monthly expenses) will help you project your operating expenses on a monthly basis.
Table 3 — EXPENSES FOR ONE MONTH
- Your living costs
- Employee wages