Starting Your Own Business

STARTING YOUR OWN BUSINESS…

It’s a goal of so many Americans. Starting and operating your own business. It starts with an idea. Your idea. The one you have been thinking about for some time. Most of us have dreamed about it from time to time but we have not known how to turn our idea into reality. This guide is intended to help you organize that idea and your experience into a framework for business success. We have provided the basic areas that you should consider as you begin to put that idea to work. We have also included local resources to which you can turn for assistance and services.

It will require patience and hard work. There are no guarantees. If you are motivated and want to join the growing number of small businesses across the Antelope Valley and the country, the following can help. Best wishes as you begin this great American adventure!

MANAGEMENT:

A sound business plan is critical to the success of your business. For one thing, obtaining credit or financing will require a sound business plan. More importantly, your business plan is the map you prepare from start-up to success. You may have heard the saying “plan your work and work your plan.” This is particularly true when developing a business plan. Do not let the thought of preparing a business plan scare you, the plan is simply laying out on paper what you already have in your head. It will help you identify areas of your business that may need more attention, and it will help you better organize what you plan to do.

To help you along, we have provided a general business plan outline. In addition, there are many excellent software programs on the market or potentially on your home computer, (i.e. Microsoft Office Suite or Lotus Suite) that can assist you with format and general areas your plan will need to cover. Remember, however, that every business plan is a unique reflection of the business, the owner and the community. There is no “generic” business plan, only your Business plan.

BUSINESS PLAN:

A business plan, simply put, is your business idea in written form. Business plans are required when seeking financing. A business plan may be required when you seek to acquire credit, products, services, etc. It is essential, and preparing a plan is the first step for any successful business.

A good business plan tells a story. Those reading the plan want to know about the people, the product and the market involved. The plan is your way of telling others why you are so excited about your business. Indeed, the point of the plan is to create interest without being overly flashy or in any way misleading.

The Business Plan is also your opportunity to take all of those wonderful ideas you have been walking around with and organize them in a way that makes sense. In other words, before you try your business in the real world, build your business on paper. Even if you do not plan on showing your plan to anyone else, putting a business plan together is a critical step towards getting yourself organized. If your paper business does not make sense to you, chances are it will not make sense to anyone else.

Your plan should include these ten sections:

•        Executive Summary: This is a brief summary of your business, the product or service, the customers, the financing and the other bullet points listed below. Your goal is to capture the attention of the reader in no more than two pages.

•       Mission: The mission statement is a brief one or two sentence definition of the success you envision and how you will achieve it. (i.e.“The finest in hair care products. The very best in customer service.”)

•       Company Overview: This is the legal description of your company, (partnership, sole proprietor, corporation). Review the permits and licenses you will need.

•       Product: This section explains your product or service. Include a description of the product background and how you developed this wonder.

•        The Market: Tell the reader why the market needs your product or service. This section is crucial. The reader must be convinced that you are truly filling a need.

•       Competition: Research your competition and be brutally honest. Describe how you will be different, better, etc.

•       Risk/Opportunity: Lists the risks to success such as limited experience, limited resources, market uncertainties, etc. Explain how you will overcome these challenges.

•        Management Team: Name all of the people involved in the business including a background on each. Include a description on how the business is organized.

•       Financial Plan: Where will the money come from to start? How much will the product/service cost you to provide? How much will you charge? How much will you make? The financial plan is your budget with monthly projections on revenue and expense, (high, medium and low sales) for at least the first two years of operation.

•       Exhibits: Any product brochures, media coverage, literature, etc. that bolsters your case. Do not overdo it. Plans are not judged by weight. Put only relevant information.

Services: The Service Core of Retired Executives, (SCORE) provides free consulting services to small businesses. This includes advice on financing, business plans, loan packages and general management.

FINANCE:

Once you have a clear sense of where your market is, how you are going to get to that market and what the market will pay for your product or service, you can turn your attention to the financial side of your business. This breaks out into two general areas: Accounting and Capital.

Accounting

Many businesses start with raising capital and assume that a method for accounting will fit in somewhere along the way. We would strongly advise that you develop your accounting system before you set out to raise capital.

Accounting is a picture of the business. It can begin as simple as a checkbook and a monthly cash statement. After the business gets started and products begin to sell, however, there is a need to create a system for keeping track of the activity of the business. This is really what good accounting is: keeping track of the operating results of your business. Money measures activity. Knowing how money flows through your business, how your costs compare to your profits, where the short term and long term health of the business is can all be viewed through a good accounting system. Ask yourself some key accounting questions and then set up an appointment early on with a qualified business accountant. Some of those questions will include:

•       How will my business handle payroll taxes?

•       What are the cycles of my business?

•       How often will I need to know what is happening (daily, weekly, monthly, quarterly)?

•        Can I identify all of my costs of doing business and measure them over time?

•       Who are the comparable businesses in the area?

•       What do I anticipate to be my first quarter and first year sales?

•       What are my gross profit requirements?

•       How does this business relate to my current tax situation?

•       What areas of compliance and reporting does my business require?

•       What can I reasonably afford to pay for accounting help in my business?

•       How much of the accounting work can I do on my own?

•       How much paperwork is the business going to require?

It can be very helpful to have an accountant’s help in setting up your system at the very beginning. Even if you plan on handling the bookkeeping yourself, setting up a system that can grow with your company will more than pay for itself.

Not-So Easy Money:

Having developed a way to keep track of your business, you can now focus on where the capital comes from to get your business going. Most businesses in America still start with personal savings and/or loans from family members. Banks, outside investors, organized venture capital groups and small business loans are only financing a very small number of all new businesses each year. The reason is fairly simple. Outsiders want to see a track record so that they can lend or invest with confidence. They also have no other motive to work with you beyond what they can get in return for their risk. In other words, they will likely want a bigger piece of the pie than the family member who presumably has the added motivation of wanting to see you succeed. Government programs may offer low interest loans to certain types of businesses, but qualifying can be difficult. Seed money or outright grants from cities, counties and other public agencies are virtually non-existent.

Some key aspects of capital development for you to consider before seeking specific help include:

•        How much money will you need and for what purposes, (i.e. inventory, advertising and marketing, site acquisition or improvement, etc.)?

Different needs often can be financed from different sources. For example, it is possible the vendor might finance that inventory in order to help you get started. You may also be able to exchange your product or service for advertising and/or marketing resources. Knowing how much you really need and what you need it for can produce a solution short of signing over your life to the loan sharks.

•       How do you plan on paying the money back?

Before asking someone for a loan, know how you will pay it back. Even well meaning relatives, (especially relatives) should get a straight answer on the terms, conditions and risks involving their investment.

•       Plan your cash needs carefully.

Make small investments and loans succeed in the early stages of the business. That way, when you are ready to grow and need additional capital, the first investors and lenders are much more likely to say “yes” and you now have a track record to help attract new investors.

MARKETING

In business, nothing is bought until you sell it! Many entrepreneurs start out with a global view of the market for their product or service. They will justify the need for a loan or investment based upon assumptions about a share of the world marketplace. Such an approach may make you a millionaire in your pro forma, but it is no substitute for actually selling your product or service to a real customer.

Developing a Plan of Attack

Begin with a plan that lets you define your paths to market. The plan should clearly define who your customers are going to be, how you will get them to respond and what steps you will take to turn response into sales. This plan will change and take on a new shape each time you define another part of your market. In addition, understand the market for your product or service. The price of the product or service you sell is dependent upon what the market will bear, not the labor or expertise you put into it.

Creating an Identity

Big companies spend big bucks developing an identity. That’s why, when sitting in traffic on the Antelope Valley Freeway dreaming of our own business, we often hum tunes such as “We do it all for youuuu….” Or why we often refer to every Photostatted copies as a “Xerox” copy, even if you are using a copy machine made by Canon.

You, however, don’t have big bucks so you can’t have an identity, right? Wrong. Identity is in everything you do that the public will see. From the sign in your window, your web site, your ad in the Yellow Pages, (itself a brand identity, even though it is the name most us use to refer to business listings in the phone book) and most importantly, to the way you conduct business. Every thing the public sees regarding your business, for better or worse, helps to establish your identity.

Here are just a few samples of the places you can make a statement about your business that help you develop your identity:

•       Web page

•       The way you answer your phone

•       Letterhead/envelopes

•       Signs

•       Billing Statements

•       Uniforms

•       Business cards

•       Phone book advertising

•       Promotional materials (calendars, pens, etc.)

•       Advertisements

•       Pricing

A good marketer takes into account the identity of the company and how he/she projects each and every day. Expensive brochures can send the wrong message if the customer wants to know you are frugal and cost sensitive. An unanswered phone or an email that does not a timely response can leave the impression that you aren’t really in business. A rudely answered phone or an attitude that suggest that you are doing a customer a favor will leave impression that you will not be in business very long.

Remember, just because you may not have big bucks doesn't mean that you do not have marketing department. It only means that YOU are the marketing department, in addition your other responsibilities.

Advertising on a Budget

Once the identity of your company is settled upon, you should begin to think about how to the word out about your products and services. Advertising should be clearly focused, directed and cost effective. Determine who your customers are, what they see and their usual frame of mind when potentially viewing your ad. Putting an ad in the L.A. Times may sound great. But do you really need to reach everyone who reads the Times? You are paying every reader and you might be better off concentrating your ad dollars on that specialty publication that caters to your business or customer base. While many sales representatives will call on you representing various advertising media, the best rule is to know how you want to promote your business before they begin to call. Remember, their job is to sell space or time. Your job is to sell your product or service. These are not necessarily the same goals.

A Tip From the Wise

Bad impressions are more costly than good impressions are enriching. Experienced restaurant owners will tell you that a good customer brings in two friends. A dissatisfied customer, however, chases away four times that many!

REAL ESTATE

At some point, you may be ready to move out of the living room and into an office, warehouse, or business park and establish a new business address. As you consider your options, there are many points to consider in selecting a new location:

•       How much space will you need?

•        What kind of space and how much (i.e. office space, warehouse space, etc)?

•       What zoning city or county zones allow your business?

•       What permits will you need?

•       Is there sufficient parking?

•       Do you expect to add employees or expand in the future?

•       How long of a lease should you enter into?

•       How much can you afford to spend for lease payments?

•       What requirements will I need for office/industrial equipment (i.e. power, high speed phone lines, air conditioning, etc.)

A professional real estate broker can help guide you through this often-confusing maze. Keep in mind that there can be a big difference between a realtor experienced in selling homes and one experienced in working with businesses.

PERMITS/LICENSES

One of the most intimidating factors in starting a business is navigating the maze of government permits. Lancaster, Palmdale, California City, Ridgecrest and Tehachapi all require a business license if you plan on doing business in these cities. The cost of a business license ranges from $25 to $100 (and possible more if your business is larger) depending upon which city, the nature of the business and the number of employees. There is no charge for a business license in the unincorporated portion of Los Angeles County. In addition, you may need a “Home Occupancy Permit” if you plan on operating your business from your home. The Home Occupancy Permit is a one-time expense, (approximately $50) while business licenses need to be renewed annually.

There are certain restrictions regarding the types of businesses allowed in certain areas. For example, it is generally not permissible to operate a retail business in a residential area. There are also restrictions regarding storage and parking that you will need to check. When you know how you plan on operating, simply call the city in which you plan on doing business and they will tell you the specific requirements, and how to obtain a business license and home occupancy permit, if needed.

RISK MANAGEMENT

Government plays a big role in your relationship with your employees. You must conform to specific statutes in your hiring, management and termination practices. You must also pay unemployment, Social Security, payroll taxes and workers compensation benefits for every employee according to a very specific timetable. You may also wish to provide tax advantaged health insurance, welfare benefits, retirement plans or other employee benefits as part of your compensation package.

At the same time, companies now have to be prepared for the risks associated with doing business. Liability for personal injury, accidents, and protection from loss due to a fire or theft are but a few of the hazards you must be prepared to face as a business owner.

Insurance programs must fit the needs of your specific business and employee group. You should approach this problem directly through planning and regular review of changes in your needs and coverage with people who are experienced in the fields listed below.

You may wish to start by consulting an attorney experienced in business law. They can review your business plan and/or personal policies and provide advice, which could limit the exposure you or your business might face.

The next step would be to sit down with a qualified and experienced insurance agent. This should be done on an annual basis to review or “audit” your business. Such an audit should cover the following:

•       Review the current loss prevention program and the claims procedures;

•       Review all employee benefits and the business goal of those benefits;

•        Review any insurance requirements resulting from business agreements, contracts

or lending instruments;

•        Review the cost of all coverage and compare competitively with what is available;

•        Review current safety and emergency procedures in the workplace including environmentally sensitive procedures, processes and materials.

Write this audit up and place it in your risk management file for review at the end of the year. Send it to your agent in advance of your annual review, (highly recommended) and be sure to have all of your records, policies and employee information with you during your annual review.

PEOPLE

Once you reach the point where you can no longer go it alone, you enter the world of personnel. At an early stage in your business, you may be able to “contract” out work to area shops or even through contract employment services. This can help you manage the demands of your market for your product or service without creating an ongoing obligation on your part. Developing your personnel plan can be one of the most critical parts of your business development. Doing it well requires thinking about your needs, your business cycles and the skills and resources employees must bring to the job for your company to truly succeed.

Developing a work place is often very stressful. It becomes a new “family” for many entrepreneurs. Approach this task thoughtfully and carefully. Decide in advance how you want to relate to people who work for you and what is comfortable for you. Do not try

to get too far outside of your own personality in order to accommodate what someone thinks should be your approach. Don’t be afraid of your employees. They are in this game with you. Set targets and objectives everyone can see and identify.

You take on a big obligation when you hire somebody. That person is bringing home money, putting food on the table, taking care of children, paying taxes, etc. They are your most important resource, however. They can make themselves, and you, a failure or a success. They are not a necessary cost but rather a critical investment. Choose and manage with care.