This action might not be possible to undo. Are you sure you want to continue?
Email 7ShareThis 11
In business, there are no guarantees. There is simply no way to eliminate all the risks associated with starting a small business -- but you can improve your chances of success with good planning, preparation, and insight. Start by evaluating your strengths and weaknesses as a potential owner and manager of a small business. Carefully consider each of the following questions. Are you a self-starter? It will be entirely up to you to develop projects, organize your time, and follow through on details. How well do you get along with different personalities? Business owners need to develop working relationships with a variety of people including customers, vendors, staff, bankers, and professionals such as lawyers, accountants or consultants. Can you deal with a demanding client, an unreliable vendor, or a cranky receptionist if your business interests demand it? How good are you at making decisions? Small business owners are required to make decisions constantly -- often quickly, independently, and under pressure. Do you have the physical and emotional stamina to run a business? Business ownership can be exciting, but it's also a lot of work. Can you face six or seven 12-hour work days every week? How well do you plan and organize? Research indicates that poor planning is responsible for most business failures. Good organization -- of financials, inventory, schedules, and production - can help you avoid many pitfalls. Is your drive strong enough? Running a business can wear you down emotionally. Some business owners burn out quickly from having to carry all the responsibility for the success of their business on their own shoulders. Strong motivation will help you survive slowdowns and periods of burnout. How will the business affect your family? The first few years of business start-up can be hard on family life. It's important for family members to know what to expect and for you to be able to trust that they will support you during this time. There also may be financial difficulties until the business becomes profitable, which could take months or years. You may have to adjust to a lower standard of living or put family assets at risk in the short-term.
Poor location 4. It depends primarily on the owner's foresight and organization. According to the U. Even then. You will be your own boss. But for the right person. Small Business Administration. the advantages of business ownership far outweigh the risks: 1. .Why Small Businesses Fail Success in business is never automatic. of course. but to prepare you for the rocky path ahead. Low sales Starting a small business is always risky. willing to work hard. These figures aren't meant to scare you. success can be yours if you are patient. In his book Small Business Management. Michael Ames gives the following reasons for small business failure: 1. and the chance of success is slim. Underestimating the difficulty of starting a business is one of the biggest obstacles entrepreneurs face. Unexpected growth Gustav Berle adds two more reasons in The Do It Yourself Business Book: 9. Insufficient capital (money) 3. over 50% of small businesses fail in the first year and 95% fail within the first five years. On the Upside It's true that there are many reasons not to start your own business. and take all the necessary steps. Lack of experience 2. there are no guarantees.although a little never hurts. Poor credit arrangements 7. However. Poor inventory management 5. Competition 10. Over-investment in fixed assets 6.S. It isn't strictly based on luck -. Personal use of business funds 8.
4. Source: U. there's simply no avoiding the inherently dangerous nature of the business. however. here are some very common forms of risk that companies often take on: y y y y y y Caring for children or animals Providing access to alcohol Making driving part of the job Building or repairing structures or vehicles Including physically dangerous activities as part of the job (e. lifting heavy objects) Repairing or handling rare or high value items (e.. and when you add in additional high risk components. it may be a recipe for disaster. rather than increasing profits for someone else. Hard work and long hours directly benefit you.g. Earning and growth potential are far greater.g. limited liability company or limited liability partnership. but if you plan on starting a construction company. you need good insurance and should structure your business in a way that protects you from personal liability. A new venture is as exciting as it is risky. since these forms of business structure leave their owners personally liable for the debt and judgments incurred by the business.2.S. In general. antiques) If you do plan on starting a business that involves any of these. You can mitigate some of these hazards by buying the necessary insurance. 5. 3. Evaluating Your New Small Business Idea Email 9ShareThis 9 . Consider forming a corporation. hazardous waste disposal company or some other form of high risk business. Not all risk is so obvious. Running a business provides endless challenge and opportunities for learning. avoid being the sole owner of a high risk business or structuring your business as a general partnership.. Small Business Administration High Risk Business Email 1ShareThis 1 Starting a business is inherently risky.
including restaurants. and Internet and computer service providers. Your chances of success will be much greater if you invest in something you truly care about. you can follow these tips to help you: y y y Find something you enjoy. movie theaters. care for children. After you have done this and determined that pursuing your small business idea will be profitable. Thinking through these issues will help you decide whether or not your business idea is worth pursuing. Types of business to avoid Businesses that use hazardous materials. This will help you determine whether or not your small business will even make money. You will be able to decide the profitability of any business by doing your break-even analysis. sell alcohol. Developing a new small business idea The first step in developing your new small business idea is to do a break-even analysis. Stick with what you know. you can write a business plan that details how you plan to operate and lists the benefits. as only you can make that decision. Although only you can decide if you're ready to quit your job and plunge into running your own business.There are many issues to consider when evaluating your new small business idea. Deciding which type of business is right for you There are numerous types of businesses. make edible goods. or other items of value come with inherent risks. vehicles. No one can give you advice on which one is best for you. here are some of the rewards of going out on your own: . however. risks. Trying to learn a trade at the same time you are trying to start a business is not feasible.benefits you may miss out on if you remain a wage earner for the rest of your life. Choose a profitable business. learn it inside and out before investing your time and money into making it your business. marketing plan. and profitability potential of your new small business. If you enjoy something that you don't know a lot about. But great rewards await entrepreneurs lucky enough to create successful small businesses -. or build or repair structures. video rental stores. Unless you are prepared to start a corporation or limited liability company and can afford adequate liability insurance (which can be pricey). grocery stores. you may be better off working for one of these businesses rather than starting your own. there are some types of businesses that are particularly vulnerable to competition. especially if they can fill a niche market and develop a loyal following. bookstores. It is also wise to research business financing to determine how you will fund your new small business. In addition. But these businesses sometimes do survive. Benefits and risks of starting a new small business Benefits Starting a business can be scary.
y y y y Independence and flexibility. Although most entrepreneurs don't get wealthy. Before you quit your job. there are two basic questions you can always ask yourself: what do I know best and what do I wish I was doing? The answer to either of these questions can be the beginning of your dream business. and even your good credit on your business idea. you can have your employees do it your way. ask yourself whether you're willing to gamble your retirement. You're going to need money to get your small business started. Whether you raid your savings account. Starting a Business in an Industry You Know Starting a business in an industry you know has obvious advantages. hit up friends and relatives. Money. You may not have much time for family or friends or the extra cash to take a second honeymoon with your spouse. Don't be surprised if power is one of your goals. If you're unsure about what kind of business you should start. or at least do very well financially. Personal sacrifice. If power is important to you. You can get rich in a small business. You'll have more freedom and independence working for yourself. there are definitely some risks. including your precious evenings and weekends. think about how to use it in a constructive way. you'll probably have the flexibility to make sure you don't miss the moments and events that matter most to you in life. your friends. or the bank will never see that money again. Risks Although you can reap many benefits by starting your own business. Start a New Business Email 5ShareThis 8 If you've always dreamed of starting your business but have never known where to start. it's time to start researching and planning your dream business. Your personal . Power. The risks of forgoing a steady paycheck can pay off when you own your own business. Getting your business up and running may consume most of your time and energy. Many successful small business owners find they enjoy the respect they earn from their peers for having the courage to go out on their own. The most common include: y y Losing money. your friendships. some do. If your business idea is risky. there's a very real possibility that your business won't succeed and that you. Business success can come at a high personal cost. or borrow from a bank. decide whether you (and your family) are ready to make some of the personal sacrifices necessary for you to create a successful small business. And once your business is firmly established. When it's your business. You'll be starting out with an advantage in an industry where you have prior experience and expertise. Owning and running your own business can be more satisfying and fulfilling than working for someone else. Personal fulfillment.
Volunteering. Before you throw yourself into a new arena. it's time to assess your commitment to starting a new business. however.network and business contacts can also be invaluable when getting your new business off the ground. Talk to people you know in the industry . it doesn't matter if you're familiar or not with an industry. and found that you enjoy your new role. For example. with most new businesses failing in their first year. passion and desire to make a business work. Evaluate your commitment: once you've explored the new industry. so if you aren't fully committed to making it work. it's time to crunch some numbers and seriously analyze the business potential of starting up a new business in that industry. or aren't. who your suppliers are and who you think your customers will be.you may be surprised by what you find out if you express interest in starting up a new business. There's no reason you can't be successful in another industry as long as you do your homework and have the necessary passion. . Starting a Business in an Industry You Don't Know Sometimes. Secure financing. enjoying yourself. Create a business plan outlining what you plan on selling. consider the following: y y y y y Try before committing: there is almost always a way to "try before you buy" in any industry. Start researching the expected start up costs. you can get your new business off to a successful start. What's the point in switching industries and wading in unfamiliar water if you aren't enjoying yourself? Analyze the business potential: if you find that you are enjoying yourself. Evaluate your enjoyment: always be honest with yourself about how much you are. taking a class. Locate suppliers/distributors. Starting a new business is hard enough. Analyze the business risk: while it pays to be optimistic. If you have the drive. analyzed the business potential and risk. or you may find that friends and colleagues have been thinking the same thing and want in. they can help you: y y y y Find employees. You may find older businesses that are willing to sell their business or customer list. people have worked in an industry for a long time. and prepare a business plan for how you plan on turning a profit and how long you believe it will take. and Find customers. Lay out what you see as the biggest potential impediments to success and always establish an escape plan to save yourself from financial ruin. it's time to reevaluate your plans. but have always wanted to pursue a job in an entirely different industry. or engaging in part-time work can all be great ways to get your foot in the door and see if the industry really suits you. As long as you're committed and take the time to do your homework and draw up a solid business plan. never ignore the business risks when entering a new industry. Starting a business in an industry you are unfamiliar with is even more difficult.
Divide your estimated annual overhead by your gross profit percentage.00 on each toy that you sell for $8. Finding Your Break-Even Point After you have recorded the estimates listed above. Sales Revenue refers to the total money from all sales activities that your business will make monthly and annually. Once this is established.00. This quotient is the amount of sales revenue you need to break even. Gross profit percentages are calculated by dividing the average gross profit amount by the average sales price. that their predicted revenue is greater than their costs. . In order to educate your estimates. if you plan to succeed. after deducting the direct cost for each particular sale. entrepreneurs can continue creating their business plan. Average Gross Profit Percentages tell what portion of each dollar of your sales income is gross profit. Be sure to found your estimate on the volume of business that you realistically expect. A break-even analysis is the best way to determine whether your business idea is a winner. Average Gross Profits are the amounts that are left over from each sale. rather than on how much revenue is needed for a profit.How to Do a Break-Even Analysis before Starting your Business Email 20ShareThis 23 A break-even analysis is the essential preliminary step of a business plan. your average gross profit is $4.00. but doing one is in the best interest of your business plan. The estimates that are needed for a realistic break-even analysis include the following: y y y y Overhead includes your month to month expenses that are pretty constant. insurance. research the current market of your business. If a toy costs you $4. from their break-even analysis.00 to sell. utilities. Now is the time to make habits of calculating your costs and potential profits. A lot of small business entrepreneurs grow overwhelmed by the idea of doing a break-even analysis. such as rent. A break-even analysis will tell you if your business will make money by showing you your break-even point. you average gross profit percentage is 50%. How to Start Your Break-Even Analysis The first part of calculating your break-even point is making estimates about certain expenses and revenue.00. you are ready to find your break-even point. If your toy gives you an average profit of $4. There are plenty of how-to resources to teach you how to make these estimates. etc. Experienced entrepreneurs will not even start a business plan until they are sure. and you are selling it for $8.
reducing the number of.000. Remember that this amount does not include a salary for you or any profit at all. This realization is what makes break-even analyses so important. Now. or "profit-and-loss forecast. your business idea may not be attainable. and raising your sales prices. calculate the following to conclude your business's financial analysis: y y y y the profit you will generate. whether you have enough liquid funds to pay your expenses and bills on time. your business's monthly net profit. If after changing some of these factors. and you have an idea of your budget.000 per month ($5. It is merely how to break even between your overhead and revenue. your break-even point is still too high. if your annual overhead is $5. If you reach a desirable break-even point. Consider: y y y y shopping around for less expensive supplies.000 divided by 50%).For example. .000 a month to pay your overhead and direct sales costs. you have saved yourself a lot of time and money. If Your Break-Even Point is too High If your break-even point is higher than you expected. you know you can continue on with your business plan. There may be parts of your business that can be manipulated to yield a desirable break-even point. If you end up scratching the business plan. It may not be a total loss. don't fret. or eliminating employees altogether. and your gross profit percentage is 50%. before your business even opens." and your start-up cost estimate of all the expenses. working from home. you would need to make $10. The Next Steps in Financial Analysis If your break-even analysis tells you that your revenue far exceeds your break-even point. you can continue to the next steps in your financial analysis. So. your break-even point is $10.
This action might not be possible to undo. Are you sure you want to continue?
We've moved you to where you read on your other device.
Get the full title to continue reading from where you left off, or restart the preview.