April 2002

 
Are You Ready for Business?

Small businesses are the backbone of the American economy.  They create two of every three new jobs, produce 39% of the gross national product, and invent more than half the nation’s technological innovation.

What does it take to have a successful business?   It’s certainly not luck, but a lot of research, hard work and an entrepreneurial spirit.  To be an entrepreneur, you have to be a risk-taker, resourceful, innovative, have good judgment, self-confident and motivated – just to name a few. 

If you’re thinking of starting your own business, be sure to examine your business idea.  Don’t start a business venture just because you like it. Can you explain your business idea clearly and in enough detail to check out your assumptions?   Is it a sound business idea?  “A business idea makes good business sense if, in explaining the concept, a disinterested observer would be able to see that there is a  ready market for your product or service, that you have the experience and networks to exploit the market, and that you can raise enough cash to start the business.”  (“Smart Steps to Smart Choices”, David Bangs, Jr.)

Your proposed business venture has to be right for you. You’ll need experience to manage your business effectively.  You and your business have to fit, but you also need to have a market for your product or service.  Evaluate your business product or service-  who will buy it; how much will they pay for it; where are they located; who are your competitors; can you make a profit?  These questions are only a few that you must consider before putting the time, money and effort into your business idea.  Be sure to check out the industry.  What will be the demand for your business product or service in 2, 5 or 10 years from now?  For example, what if you had decided to start a typewriter business 10 years ago?  You would be “out of business” today. 

Let’s look at this scenario.  If you are thinking of opening a bed and breakfast business, here are some things you should consider.  Do you already own the property for the business?  Who’s your market….will there be enough customers to generate sufficient revenue to pay your bills and still make a profit?  Take a look at the competition.  In this case your competition is not only another bed and breakfast, but also hotels and motels within a selected geographical area.  Maybe you’ll have to do something different than your competition to attract a targeted market.

After you’ve analyzed your business idea and market, ask yourself if your business idea makes financial sense.  You need cash to make the business work. Even if you can get a small business loan, you will still need to invest some of your own money in your business. Commercial banks and the Small Business Administration (SBA) will usually require a 20% owner equity in a small business loan.  Before you get a loan (or use your own money) to start your business, you need to determine if you can make a profit.  How much cash does it take to get started and how much cash do you need for operating capital to sustain you until you start making a profit. This is where good research and market evaluation will “pay off”.  It will help you develop good sales projections and estimate business expenses to determine profits. Sometimes, depending on the business you have, it doesn’t take a lot of capital to start a business.  Taco Bell and Frito-Lay were both started with under $500, provided by the founders’ mothers.

Next you’ll need to look at your personal finances.  Can your business generate enough profit to take care of your personal financials such as house payment, car note, insurance, etc.?

Fortunately you don’t have to do this research and evaluation on your own.  We’re here to help you.  Myself along with other resources can work with you in developing your proposed business idea individually or through seminars and training.  Through individual counseling I’ll have you start with a Feasibility Study.  This initial analysis will examine all the things mentioned above. We will then work with you in doing some research for your business.  This includes an industry study, market and competitive analysis, and start-up costs and financial statements.  I strongly recommend that you do a business plan.  In fact, a business plan is required if you plan to get a loan. Lenders will look at the business feasibility, market, management experience and financial statements.  Yes, you even need financial statements before your business gets started---projected financial statements. The business plan is a roadmap for your business.  Every business should have a business plan, not only start-ups. (I’ll discuss business plans in a future article). 

So if you’re ready to start your own business, call Virginia Wilson, Business and Industry specialist at the University of Missouri Extension Office in Warren County Extension at 636-456-3444 or in St. Charles County at 636-970-3000. Visit our business website at www.mo-bis.org.

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		University of Missouri Extension Warren County WarrenCo@missouri.edu Last Revised:  01/11/06