HOW TO START A SMALL BUSINESS.   Term Paper ID:19037 Click to get this paper

Essay Subject: Deals with organization & legal structure, financing, purchase & inventory, location, advertising.... More...

14 Pages / 3150 Words 7 sources, 37 Citations, APA Format $56.00 Return to List of Papers

Paper Abstract: Deals with organization & legal structure, financing, purchase & inventory, location, advertising. Paper Introduction: There are many steps involved in starting a small business. For example, the organization and legal structure of the business must be decided upon, financing must be arranged, inventory must be purchased, the location must be chosen, and an advertising plan must be worked out. Before embarking on any of these steps, however, the aspiring business owner must make a thorough selfanalysis in order to determine if he or she is truly qualified for the task. The chances for success in a small business will be greatly enhanced if the person has the characteristics of an entrepreneur. These characteristics include leadership abilities. Thus, the aspiring business owner should be good at working with people, able to take responsibility, and have good problem-solving and decision-making skills (Martin, 1988, pp. 8-9). In addition, as noted by Sharon Text of the Paper: The entire text of the paper is shown below. However, the text is somewhat scrambled. We want to give you as much information as we possibly can about our papers and essays, but we cannot give them away for free. In the text below you will find that while disordered, many of the phrases are essentially intact. From this text you will be able to get a solid sense of the writing style, the concepts addressed, and the sources used in the research paper. In many cases the partners are equal; however, in some smallbusinesses one of the partners will be designated as a "managing partner"and will thus be given more control over the organization than the others(Berle, 1989, p. As a general rule, the SBA does not directly give outloans, but rather makes guarantees to banks that they will repay themajority of a loan in the event that the owner fails to do so (Schreiber,199 , p. Such taxescannot be ignored by the aspiring new business owner, because "failure tocomply carries stiff penalties" (Fallek, 1989, pp. Another vital aspect in small business success is that of choosing agood location. 27-29). These steps are: (1) analyzing the situation (evaluating theproposed business and its market); (2) articulating personal objectives;(3) defining the nature of the business; (4) establishing businessobjectives; (5) working out strategies and tactics for carrying out thebusiness objectives; (6) creating forecasts and budgets; (7) writing out aninitial draft of the plan; (8) and revising the plan as needed (p. 71). Thus,lack of experience, lack of planning, and lack of accurate record keepingare all cited as being high on the list for reasons why some smallbusinesses fail (Berle, 1989, pp. In order to insure the success of the business, theprospective owner needs to make a careful consideration regarding the bestlocation for attracting customers. This is often referred to as registering a "DBA" ("doingbusiness as") form (Schwartz, 1991, p. Withoutthis assurance, starting a new business is simply not worth the financialrisk. 45). All businesses are required to file tax returns on a regularbasis. 35). In this regard, the price must be low enough so that peoplewill want to buy the product. In additionto taxes, a good accountant can keep track of the overall profits andlosses of the company. In some cases, friends or relatives help provide the money thatis needed for the venture. There are many steps involved in starting a small business. Nevertheless, the rewards aregreat whenever a new business proves itself to be a success. In addition, liabilities and debts are shared by thepeople making up the partnership. Your Home Office. In thisregard, the chosen product must be priced so that it is neither too highnor too low in comparison with the competition. With a sole proprietorship,there is only one owner of the business. Collateral refers tosomething of value which belongs to the person asking for the loan. Many small businesses are begun with the owner's personalsavings. is thechief business malaise" (Berle, 1989, p. Many small businesses work only in mail order. Each small business owner needs to obtain a business licensefrom the local government. Retailers, on the other hand, areconcerned with providing products directly to consumers. In a corporation, there is even lesspersonal liability among the individuals which comprise it. 1 -2). By providing a description of the business, its market, and itsfinancial strategies, the business plan shows the viability of the proposedbusiness to lenders. The advantage of this approach isthat the owner has complete control over the business and its profits. Unless the smallbusiness owner is already experienced in accounting and bookkeeping, it isalso advisable that a qualified accountant be hired early on. There needs to be continued hard work,determination, and leadership in order to make sure that the businesscontinues to succeed beyond its initial opening. This paperhas shown that the chances for small business success are enhanced if thebusiness owner is an entrepreneurial type of person, and if he or she picksthe right type of product or service for insuring future profitability. Even when the small business has been successfully established, theowner's work is not finished. Thus, "if you start a business with your own money, you won'thave to worry about making loan payments or keeping investors happy"(McKeever, 1988, pp. 3-15). 5). Another related concern is that of pricing. The marketing plan tells the small business owner suchthings as who the customers are; what the customers want; how the productfits into the marketplace; and how the prospective customers can best bereached (Schreiber, 199 , p. McKeever, Mike. 6-34). (1989). These ways include usingone's own savings, securing bank loans, and seeking other potential sourcesfor loans. The chances for success in a smallbusiness will be greatly enhanced if the person has the characteristics ofan entrepreneur. If the aspiring business owner has difficulties inobtaining a bank loan, there are also other potential sources for loans.In particular, the federal agency known as the Small BusinessAdministration (SBA) is noted for its efforts in helping new businesses getoff the ground. (1988). The do-it yourself business book. Thus, the chosen site should be closeto public transportation. In How to Write a Business Plan,Charles L. Advertising in a variety of periodicals oftenrequires a large expenditure, and therefore all new businesses areencouraged to establish an advertising budget in order to meet this need. The partnership is very similar to the soleproprietorship, except for the fact that the profits are shared by morethan one person. Forexample, the organization and legal structure of the business must bedecided upon, financing must be arranged, inventory must be purchased, thelocation must be chosen, and an advertising plan must be worked out.Before embarking on any of these steps, however, the aspiring businessowner must make a thorough selfanalysis in order to determine if he or sheis truly qualified for the task. Thus,"in the long term your prices must more than cover your costs of doingbusiness" (Martin, 1988, p. This forecasting is usually included in the creation ofa business plan, which will be discussed later in this paper. New York: Doubleday. No small business will be able to survivefor very long if it habitually loses money or merely breaks even. A new businessgenerally requires a large investment of capital. Furthermore,a good location is partially determined by such factors as access toinventory suppliers and the availability of a local labor force (Berle,1989, p. Detroit: Gale Research.----------------------- 17 This refers to the classifiedand display ads which are found in magazines and newspapers. New York: Harper &Row. In a corporation, on the otherhand, "the stockholder's liability is limited to a fixed investment amount"(Martin, 1988, p. Much advertising for smallbusinesses is geared toward the print media. 3). Such records are important not only for keeping controlover the business, but also for providing proof of expenses in the event ofa tax audit. Vol. In recent years, many small businesseshave begun turning to the concept of "guerrilla marketing" and have thussought alternative means for advertising their products. Once the potential customers have been identified, thesmall business owner needs to work-out what distribution channels will beused. A business plan, isessentially, an overall guideline to the proposed business. In addition, a location where there is a greatdeal of foot traffic carries a number of inherent advantages. 1-2, 1 -3). Promotion relates to the free publicity which occurs whenever amagazine or newspaper mentions a product in its articles or columns.Aspiring small business leaders are well advised to learn about theprocesses involved in creating stimulating press releases which will beaccepted by the print media for promotion purposes. However, it is generally agreed thatthe single greatest cause for small business failure is not found in lackof sales or competition, but rather in the failures of the owner. In making this type of analysis, the new business owner needs todetermine what potential customers want or need, yet are not receiving fromthe competition (McKeever, 1988, p. Thus, the marketing plan generally analyzesthe competition and seeks to find ways in which the chosen product isunique within the field. In the wordsof Charles L. In this way, the owner can arriveat a product and a marketing approach which are attractive to customerswhile at the same time standing out from the rest of the products andapproaches which are similar to it. By understanding thecharacteristics of potential customers, the owner can better determine howto attract them. 35). 42). In addition, businesses involved in the retailindustry are required to obtain a resale tax license. The risks involved in buying any kind of existingbusiness are far less than those in establishing an entirely new one. In a partnership, two or more partners share the control of thecompany. If the business was successful before, there is a goodchance that it will continue to be successful in the future. Upon deciding what type of business to start, the entrepreneur mustnext determine what the organizational and legal structure of the businesswill be. As an alternative, the budding entrepreneur alsohas the option of buying a business which has already been established bysomeone else. However, the majorityof them are involved in either the manufacturing or selling of a product.In terms of selling a product, a small business can be either a retail or awholesale business. (1988). For example, the members of thecorporation are limited in their actions by the various laws of thecorporation as well as by the government regulations which are required forsuch a business (Martin, 1988, p. 18).Many small businesses are in the service industries. However, ifthe business is a normal retail establishment, some type of store or outletwill be required. When the statement is filed with the stategovernment, a check is run by the state in order to make sure the chosenname is "free of conflict" with other existing business names (Fallek,1989, pp. Starting your new business: A guide forentrepreneurs. Successfully starting a small business also involveschoosing a product or service which is profitable. Taxes are yet another important legal consideration for newbusinesses. In addition to paid advertising, there is also the concept ofpromotion. 18). The new business ownerneeds to be assured of making that investment back, with a profit. In developing an effective marketingplan, the small business owner also needs to be concerned with theactivities of the competition. An example of this type of marketing can be seen in the actof handing out printed flyers to people as they pass on the street.Thinking of ideas like this forces the small business owner to come up withideas which make the chosen product stand out among the crowd. A wholesale outlet specializes in being a middlemanbetween manufacturers and retailers. In terms ofinsurance, it is advisable for most small businesses to be covered for suchthings as fire, liability, and theft. For thesetypes of businesses, location is not a serious problem because theentrepreneur can work out of his or her own home if necessary. If a smallbusiness is concerned with the selling of a product, it will need to have astrong inventory in order to become successfully established. 47). 3). 6-33). (1988). The three basic structures of a business are: the soleproprietorship, the partnership, and the corporation. Inaddition, the owner in a sole proprietorship has more flexibility andfreedom than in the other structures (Martin, 1988, p. 8-9). In most cases, smallbusinesses are also required to file a fictitious name statement with thelocal government. Product pricing isa very important consideration in determining the potential success of anynew business. However, asnoted by Max Fallek, a disadvantage in a sole proprietorship is that theowner faces "unlimited personal liability if the business goes belly-up orif threatened by a substantial lawsuit" (Fallek, 1989, pp. A fictitious name statementis required whenever a person establishes a new business which is not knownby his or her own full name. 35). 1 1 BestBusinesses to Start. Another important aspectin insuring continued small business success is that of flexibility. However, there are also certain disadvantages tobe found in running a corporation. The better the plan, the better the chances are ofthe entrepreneur obtaining money from outside sources. 2. Small business start-up: How to write abusiness plan. Thus, thesmall business owner in such trades will be concerned with such things aspurchasing and having a good source of supply. 71). Thus, in addition to establishing an overall businessplan, new owners are encouraged to develop a concise marketing plan whichcovers this aspect. References Berle, Gustav. Any newenterprise will be faced with difficulties. Witha new business, there is no track record to be analyzed. Vol.1. Therefore, a new business should provide a product or service whichis needed or wanted by customers, and which is somehow better or cheaperthan the similar items which are offered by competitors in the field.Deciding which product or service will be in high demand is a verydifficult undertaking. Kahn,, Sharon, and the Philip Lief Group. However, there arealso a number of financial risks involved in getting that idea started.Therefore, Mike McKeever recommends that aspiring small business owners begiven both "encouragement and caution" (McKeever, 1988, p. How to set up your own small business. Schwartz, Carol A., ed. As noted byMcKeever: "In my view, small business is one of the last great frontiers ofboth individualism and opportunity, but like the prairies of yesteryear,there are more than a few rattlesnakes among the poppies" (McKeever, 1988,p. Purchasing this type of business hasfewer risks because there is a parent company which controls everything andis capable of helping out when there are financial difficulties. 16). However,franchises limit business owners because "you not only sacrifice apercentage of your future profits, you also lose a degree of independence"(Kahn, 1988, p. Banks can be very demandingin their rules for giving out loans to new businesses. 33). 1 -2). Thus, "preparing for such competition through proper pricing,display, service, selection, and promotion is a basic commandment ofrunning business" (p. In a marketing plan, the small business owner must also ask questionsregarding the demographics of potential customers. There is always thepossibility that a particular business idea will work. Berle warns that, even if there is no substantial competitionat the start of a business, the success of that business will eventuallyattract it. Nonetheless, aspiring business owners mustbe prepared to face the challenges as well as the rewards. (1991). For example, inmost cases, the bank will ask the aspiring owner to invest at least as muchas they are lending. Whengiving loans, banks require that such collateral be put up as a security inthe event that the loan is not repaid on time. In a retail business, advertising and promotion are the bestpossible ways for reaching customers. Inthis regard, the business owner must be prepared to change his or heroriginal plan if necessary (McKeever, 1988, pp. There are a number ofcosts involved in starting and maintaining a business. Financing is another necessary aspect of establishing a new smallbusiness. 71). 5). In other words, they want the entrepreneur to come upwith at least half of the overall investment capital and to thereby show awillingness to share the financial risks which are involved (McKeever,1988, pp. There are also numerous casesin which a small business will fail because of the strength of thecompetition. Bank loans always require that the potentialbusiness owner have some form of collateral. Asnoted by Gustav Berle, "loss of sales due to competitive reasons, stylechanges, inadequate sales efforts, changes in road patterns, etc. In addition, the process ofestablishing a corporation is very complicated and requires a great deal ofpaperwork, as well as experienced advice from accountants and lawyers. There are advantagesand disadvantages to each of these structures. Another legal requirement for small businesses is that of maintainingaccurate records. However, ifthe business was a failure in the past, it may not be worth purchasing. If the business is tosucceed beyond its first few months, the owner needs to be sure that therewill be no problems in terms of restocking the inventory whenevernecessary. In addition, alternative marketing approachesare often helpful to new businesses because they tend to be more noticeableto the public. In order to makesales of any product, the product must somehow be made available to thegeneral public. In addition, small businesses withemployees are required to carry workman's compensation insurance as well associal security and unemployment insurance.18 There are a variety of ways in which financing can be obtained forthe purpose of establishing a small business. The most importantelement of all, however, is that of picking "something you love and aregifted at" (p. Thus, the success of any new business isattached to the success of its advertising and promotional campaigns.Related to this are marketing and distribution concerns. In addition to runningadvertisements and seeking publicity in the print media, small businessesalso have the option of informing their customers of their products throughthe broadcast media. Effective pricing requires that the smallbusiness owner be aware of the competition within the same field. Although many new businesses fail within their first few years, thereare also many others which go on to succeed. This approach isgood for both new and small businesses, because it often involves usingoutlets which are cheaper. The process of filing a fictitious name also involvesrunning a classified advertisement in the Legal Notice Section of a localnewspaper. New York:John Wiley & Sons. The risk in buying an existing business can bereduced by buying into a franchise. Without thiswillingness to change, the small business will probably fall by the waysideif there are drastic changes in such things as market, customers, or thecompetition. In this regard, both television and radio stationsoffer the sale of advertising "spots" to small businesses. Small business sourcebook: Theentrepreneur's resource. Because ofthe risk factor in buying a business, the prospective buyer should studythe situation carefully. Fallek, Max. Thisdocumentation is usually provided in the form of a business plan. 6-17). It may benoted, however, that running advertisements on television is generally muchmore expensive than it is on radio. Schreiber, Norman. (199 ). Furthermore, "any purchase contract should beprepared or at least carefully examined by your lawyer and/or accountant"(Fallek, 1989, PP. 267). In addition, small businesses which have employees are required tofile statements regarding withholdings from their salaries. Inthe words of Kahn, when you buy an existing business "you inherit eitheradept or incompetent employees along with either a readymade clientele orcustomers who never seem to pay their bills" (Kahn, 1988, P. Inaddition, it has been shown that successful small businesses generally haveadequate financing, ample inventory, a good location, and a strongadvertising and marketing plan. The major advantage of using one's own savingsis that it provides the business owner with a great deal of financialfreedom. One reason why a small business might fail is low sales. In a soleproprietorship or partnership, the owners are personally liable for thedebts which are owed by their companies. 2146). If the aspiring business owner does not haveenough personal savings to cover the costs, there is also the option oftrying to obtain a bank loan. Los Altos, Ca.: Crisp Publications. Martin, "a business plan is a carefully prepared documentthat outlines the nature of the business, the objectives of theentrepreneur and the proposed actions that will be required to reach thoseobjectives" (Martin, 1988, p. Beyond determining the legal structure for the organization, thereare other legal requirements which are involved in establishing a newbusiness. If a person feels qualified and thinks they have a good idea forstaring a business, perhaps the next step would be to visit a local officeof the Small Business Administration. The SBA offers many sources forfurther information, including booklets and seminars which can help thepotential small business owner get started (Schreiber, 199 , p. It is vitally important that a small business keeptrack of its expenses and income in order for it to succeed in the longrun. In fact, it is obviously impossible to start a new commercialenterprise without some form of investment capital. Martin, Charles L. These costs includepayments for rent, equipment, salaries, licenses, tax deposits, legal fees,accounting fees, starting inventory, insurance, advertising, cash on hand,and cash on "reserve for unforeseens" (Berle, 1989, p. This is because "athorough, concise, and persuasive plan will convince lenders and investorsthat the entrepreneur is serious about starting a business and has done therequired homework" (Martin, 1988). 3-13). As emphasized earlier in this paper, the mainattraction of a particular product to customers is the way in which thatproduct stands out from the others. 2146). Therefore, theperson planning on starting a small business must somehow be able toforecast in advance what the potential profitability of the chosen serviceor product will be. 7-3). For example, knowing where customers like to shop canhelp the owner to determine the best possible location for a new business.In addition, knowing what magazines and newspapers the customers like toread can help the owner to determine the best places for runningadvertisements. 6-17). 35). In fact,all considerations of marketing are important to the new small businessbecause, in addition to attracting potential customers, they give a focusto the direction in which the company is heading. Banksand other lending institutions will not give out money to people who areuncertain about the direction in which their businesses will be heading.Thus, as advised by Gustav Berle, the potential business owner should"prepare a sound, thorough, rational business plan that tells all about youand your future aspirations, because only with such a plan will you be ableto get enough investment money" (Berle, 1989, p. 34). These characteristics include leadership abilities.Thus, the aspiring business owner should be good at working with people,able to take responsibility, and have good problem-solving and decision-making skills (Martin, 1988, pp. Martin enumerates eight steps which are involved in creating asolid plan. 1989). Thus, ifthe owner dies or quits, the entire business generally comes to an end. Berkeley: Nolo Press. In fact, a keyconcept in this type of structure is that the corporation has a legalstatus which gives it "its own rights, privileges, and liabilities distinctfrom those of its members" (Schwartz, 1991, p. In order to obtain a financial loan, potential business owners areobliged to provide - in addition to some form of collateral - a "documentedmeans with which to pay back the loan" (Schreiber, 199 , p. In addition, an advantage of the corporate structurecan be seen in the fact that it gives greater Inflexibility in tax matters"(Fallek, 1989, pp. The YellowPages in the telephone directory is another place in which successfulprints ads may be run. Anotherpossible disadvantage of this structure is that it places all of theresponsibility of the business on the shoulders of one person. In addition, as noted by SharonKahn, the small business owner needs to have self-confidence andassertiveness, courage, willingness to take controlled risks, capacity forhard work, ambition, and persistence (Kahn, 1988, p. At the same time, the price must also behigh enough so that the product does not seem cheap to the customers.Furthermore, the price of a given product must be high enough to insurethat product's profitability. Minneapolis: American Institute of Small Business. In getting a new business started, it is important that potentialcustomers be informed about it. 6-33). 4th ed. If this paper is not what you are looking for, you can search again: Search for: or Click here to request an essay written just for you.