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How to start a business Starting a business is not as simple as opening your doors to the public. A great deal of planning, research and knowledge is needed to ensure its success. Market Assessment One of the first steps in examining your business idea is to do some research to get to know more about your market. Presumably you already know that a market exists for your product. If you have an idea for a business but you're not sure whether a market for it exists or is big enough to support your business, you are getting ahead of yourself. If that description applies to you, you'll need to take a step back and look at finding the right small business for you. For those who believe that a market exists, but who want to know more about the size and shape of the market in order to forecast their chances for success, research is the best place to start. Researching your market to know more about your customers and your competitors is a critical step for small business owners. If Procter & Gamble puts out a product that doesn't sell, they move on to the next idea. If you put out a product that doesn't sell, you're out of business. When you conduct research, you'll want to find out the following: n Who are your likely customers? Will who they are affect where you need to be (for example, if students are your customers, you may need to be near schools)? n How can you reach your customers? Which marketing options will reach the most customers at the lowest cost? n How much will they pay for your product or service? Are you planning to charge too much for your product or service? Are you planning to charge too little? n Who are your competitors? Have you also considered those who aren't direct competitors but who might nevertheless compete against you (for example, if you sell an online magazine, you're competing not just against other online magazines but against other products that occupy someone's leisure time)? n How will be you be positioned in the marketplace? Will you compete with existing businesses head on or will you try to find a special niche? The Right Small Business for You Finding the right small business to meet your individual strengths, needs, and goals has two components. n What kind of business should you start? Many people who want to start a small business have a pretty good idea of what type of business they want to own. But some only have a general idea, while others don't have any idea at all. n Should you buy an existing business rather than build from the ground up? A business or franchises that’s already operating can save time and, sometimes, money. Choosing a Type of Business Most of the books you can read on the subject of finding a small business will tell you that the best place to start is with a matching of your skills and experiences to some business that requires those skills. For example, if you love to cook, they'll suggest you open a catering business or a restaurant. If you have a strong interest in something, think about the needs of other people who share your interests. Is there something you can provide? It may help to think in terms of goods and services. Most businesses involve a mixture of both, but this dichotomy can help narrow the focus. Ultimately, considering doing something you love is a start, but it has to be further analyzed by examining the market potential, competition, resources required to enter the market, consumer/buyer demand, and uniqueness of the idea. Work Smart The best place to start in picking a small business is with consumers (including other businesses that may want your product or service). What do consumers or businesses want that's not being provided to them? Ultimately, whether you succeed will depend upon whether you are able to meet some unmet need in the market. In fact, if you love to cook, you're more likely to succeed if you open an interior decorating service — even if you know nothing about interior decoration — than you are if you open a catering service, if there is a demand for interior decorating services but not for another catering company in your area. It's far easier to hire someone who knows something about interior decoration than it is to sell consumers something that they don't want. Of course, you don't necessarily have to sell a new or different product or service in order to succeed; you can succeed if you can improve what is already being sold. In the above example, you should open a catering business if you can provide a better service than other catering businesses, such as a wider menu or lower prices. But that's still a function of what consumers want. Your research would have told you that there is a demand for a new catering business if prices were lower or if the menu were more varied. Now that you have an idea of what you need, here's how to get it: n A comprehensive study and analysis of all your potential markets is something most small business owners either don't know how to do themselves because they lack the training or can't afford to pay someone else to do because it's so expensive. But there are a few less expensive (and, admittedly, less scientifically exact) techniques that you can use to find out what consumers want. n Once you have some idea of what the market wants, now is the time to begin looking at your skills and experiences. You'll need to match your skills with what the market wants. Once you match your skills to what's available, you should be well on your way to picking the small business that's right for you. n As we all know, a lot of new small businesses fail each year. In most of those cases, the small business owners were probably convinced that their idea for a business was a perfect match for their skills. They were wrong. But you can learn from their errors by avoiding the mistakes they made. In fact, there are some common mistakes that many failed small businesses make. Buying a Business or Franchise If you think that starting a business from scratch is too difficult but still want to have your own small business, you have choices. You should consider either: n Buying a business - there are a lot of successful business owners out there who want to retire, particularly as the baby boomer generation gets closer to retirement age. In some areas you may be able to purchase a going concern for less than it would cost to set up the business yourself. n Buying a franchise - you can take advantage of a successful business concept and still exercise your entrepreneurial urge by purchasing a franchise. Why Buy a Business? If you don't want to start from scratch, buying an existing business may be an excellent alternative. Let's take a look at some of the advantages and disadvantages of buying an existing business. Advantages of buying an existing business: n Immediate operation. Operations can start immediately. n Quick cash flow. Existing inventory and receivables can produce quick cash flow. n Existing customers. Customers and suppliers have already been located, and relationships with them have been established. n Existing goodwill. Goodwill toward products or services has (presumably) been created. n Easier financing. Financing is easier to obtain because the business has a track record. n Eliminate competition. Buying a business may eliminate a competitor that you would have had had you started from scratch. Disadvantages of buying an existing business: n Cost. Buying a business is sometimes, but not always, more costly than starting one from scratch. n Problems. There may be inherent problems in the business, some of which may not be apparent until after the sale. n Obsolete goods. Inventories and equipment may be obsolete. n Personality conflicts. Your personality may clash with existing managers and employees. n Un-collectable receivables (bad debts). Debts owed to the business by its customers may be old, stale, and ultimately worthless. The steps involved in purchasing a business are similar to those you need to take whenever you make any major purchase. You need to:
Caution should be exercised throughout the whole process, not only because it will help you find the business that is right for you, but it will also help you to avoid being taken advantage of by unscrupulous sellers. Your attorney or your accountant should be actively involved in your search. You may also want to consider our detailed description of selling a business from the seller's point of view. Finding a Business to Buy If you're in the market to purchase a business, there are many sources available to you to find a business for sale. If you know what type of business you are looking for, trade associations for that industry may be a good place to start your search. Click here for more If you are looking for a business in a particular area, you may want to contact the local chambers of commerce in that area to see if they can provide any assistance. Some other places you can look to are: Newspapers. Most newspapers have a classified ad section in which businesses are listed for sale. Some even have a specific classified section of businesses for sale. Internet. There are many Internet sites that list businesses for sale and there are more appearing all the time. You can do a general search of sites that offer businesses for sale, or you can do a specific search for the particular type of business you're interested in. Business brokers. Another route to finding a business is to go through a business broker. A business broker matches people who want to buy a business with people who are selling one. One of the benefits of using a broker is that the broker, at least a good one, will screen businesses that are for sale to determine if there are major problems and to make certain that the business being sold exists. The broker will also guide you through the process of selling, and help you deal with snags that may develop along the way. However, the broker's fee to sell the business will probably result in a higher sales price for you, even if the seller is the one who's nominally paying this commission. If a particular business seems like a promising choice, you'll want to contact the owner (or the broker, if the business has been listed with a broker) to find out the general facts about the business. From this information you'll be able to tell if you want to proceed further.
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