Buying or starting your own business!
We grew up believing that we would either be a worker in a large corporation or we would run our own business. For many of us, the security that once existed in the large national and international corporations is disappearing. Once, if you worked for General Motors or IBM, you knew that you had a job for life. Now, layoffs and down sizing are the norm.
Well, you’ve got the spirit to take control of your own life! What do you do? Buy or start a business!
These are two distinct paths. The first is to purchase an existing business. The second is to start your own business. Which is better?
There is no right answer to that question. There are many factors to be considered. First, will you be able to find an existing business that is just what you want? Is the business for sale? Can you afford the asking price? Is the price reasonable? Will you be able to get proper financing? Do you really know how that particular business functions?
Who will be your customers? Also, the never-ending problem of financing and cash flow continue to perplex many of my clients. Can you continue to feed your family while you wait for the business to become profitable?
So, where do you start? Clearly, the best way to get going is to develop a business plan. This is a formal document, not the back of a napkin from lunch at the corner diner. A free resource is the U.S. Small Business Administration http://sba.gov. They offer a model you might consider to develop your personal plan.
Now that you’ve got a pad and paper, or a computer screen in front of you, start writing. The first draft will be rough, disorganized and crude. It’s just a start. Keep plugging in ideas, variables, questions, and expenses. Soon, a picture will appear that will indicate the viability of your concept. Keep tuning and tweaking until you feel comfortable. Next, have your attorney and financial advisor or tax professional look at your work. Be prepared for some suggestions based on their experiences in the community.
Do not include an item for your personal salary on your plan. You’re an owner. You get paid only if and when there is profit. One of the worst mistakes I’ve seen is the budding businessperson who comes to my office with a plan showing a need for $100,000 in financing. The first $50,000 goes to purchasing inventory and equipment. The second $50,000 is for his personal salary. No banker will fund that loan. The bank requires that you have some significant personal investment in the business. That includes both personal labor and money.
If you start your own business, how long will it take before you become profitable. With an existing business you can review the current cash flow reports to see profitability. However, you’ll pay a lot more for an existing business since it is up and running. Someone else did all the leg work to get it going.
Above all, owning a business doesn’t mean sitting back and waiting for customers to cross your threshold or make your phone ring. Be sure to develop a good marketing plan. You need to budget for outreach efforts to get your product or service known in the community. Marketing is not sales. Sales is exchanging service or product for payment. Marketing is making your brand recognized. You need to be the “go to” person or place for that particular item. Yes, all of this is a real cost which needs to be factored into your start-up expenses, or your ongoing budget for an existing business.
If you don’t want to buy an existing business or don’t feel you have the stamina to start from scratch, you might explore a franchise opportunity. Unfortunately, most franchise arrangements require a significant up front investment. They also require that you pay the major company for marketing and advertising campaigns. Expect to share a portion of your profit with the franchise company. A McDonald’s or Dunkin’ Donuts will be quite expensive. They already have major market penetration and a worldwide brand recognition.
Owning your own business can be quite exciting and rewarding. Just remember that you should not do it alone. It’s a three-legged stool. One leg is your attorney, one leg is your accountant, and the third leg is your banker. You, the owner, sit on top of the stool and enjoy the view from your new vantage point.
This article provides general information only. It is not legal advice. You should consult with your own attorney before making any legal decision.