September 2008

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Start your small business right

September, 2008

Throughout America, in rural towns and giant cities, companies come and go with clockwork frequency. That specialty store with the ragged sign and lousy service? It's been replaced by a funky restaurant that serves great linguini. Yesterday's bicycle shop is today's bakery. It's no wonder. Creating a company that can survive even a few years is not an easy feat.

If you're thinking about launching a small business, increase your chances of success by answering a few simple questions.

Is there a market for my product or service? Test your target demographic. This can be as simple as putting together focus groups who will provide honest feedback. You might also attend trade shows to network with others in similar markets. Consider reviewing census figures for your area. For example, are you planning to sell baby clothes when most people in your target area are empty nesters?

How much money will I need? You'll want to review sales revenue and expense forecasts for the first year of planned operations. By the way, don't count on friends, relatives, or bankers to bail you out if cash flow doesn't meet expectations. A rule of thumb is that the company should have enough cash to survive — without tapping loans, credit cards, or lines of credit — for at least a year. For many people, that means starting the business while keeping their day job.

Do I have a business plan? A detailed business plan will help you think through all aspects of your company's start-up phase. It defines what you're selling. It lays out marketing strategies, start-up capital requirements, overhead expenses, expected cash flow, and plans for business growth. It should include a summary of your experience in that product or service.

Are my books in order? Whether you keep your own records or hire someone else to perform this important task, you should know whether your business is profitable on a monthly basis. That means tracking all expenses, including payroll costs and inventory. A sales-only focus has doomed many small businesses to failure.

How should the business be structured? Sole proprietors are liable for the business debts, taxes, and legal costs of their companies. You might want to consider setting up your firm as a corporation or limited liability company. Discuss this important decision with your tax and legal advisors so that you understand your options.

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