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Are You an Entrepreneur?
Is entrepreneurship right for you?
Owning your own business can be very exciting as well as challenging, and if you've been working under somebody in the past, you'll need to get used to a whole new set of ideas to run your business successfully.
Word about Owning your Business
You are on a journey to start your own business. What lies ahead of you is a lot of excitement, fun, and freedom. However, at the same time, you'll be faced with very many challenges, struggles, and obstacles to take care of business. Owning your own business means that the ultimate success or failure is dependent on you. Each of the decisions you make will directly reflect the business' bottom line. To be successful as a business owner, you'll need passion, energy, and a vision to keep you going through the tough times. You'll also need some financial smarts keeping cash flow in order and knowing your basic accounting.
As you are starting out, you'll be faced off with a lot of capital issues. Be sure to have a solid plan on where you intend of raising money for your business. Be sure to get multiple credit cards in place before you start your business as they can usually be a lifesaver for your business. Credit cards are a very convenient source to access capital for your personal life to make ends meet, or for purchases you need to make for your business. Be sure you have enough money and credit to get through all of the bumps ahead of you in your business and personal life.
Do you have what it takes?
Here are a few questions that you may want to ask yourself before you start your own business. The questions are presented to give you a check with reality in order to see if this is the right decision for you right now.
- Do you have what it takes to be successful?
- Do you have the drive to own a business?
- Do you really understand what it means to own your own business?
- Do you have a vision?
- Do you have the passion?
- Do you like to make decisions on your own?
- Do you like to be challenged?
- Do you have adequate resources?
- Do you have a unique service or product?
- Do you have adequate experience?
- Are you willing to make short-term sacrifices in return for long term success?
- Are you a risk taker?
- Are you a good communicator?
- Are you in good health?
- Are you comfortable with ambiguity?
- Are you competent enough?
- Are you a leader?
- Are you a high-energy person?
- Are you self-confident?
- Are you organized?
- Are you a good problem solver?
- Are you competitive?
- Are you prepared to work long hours, every day for an indefinite period?
- Are you sure you don't want the stable pay check working under somebody else?
- Will you not run away when confronted with challenges?
- Will you have your family's support?
These are all questions that you should ask yourself before starting your own business. Although you do not have to answer yes to all of the questions above, keep in mind that these are the characteristics of an entrepreneur.
Busy, busy, busy.
Characteristics of an Entrepreneur
Successful entrepreneurs tend to have some things in common. See if you have the following characteristics.
1. Vision. Do you have a vision that will help you through all the tough times, and lead other people to believe in that same vision?
2. Entrepreneur Spirit. Does the entrepreneur spirit exist within you? Are you willing to do whatever it takes to make your business successful?
3. Mentor. You may get stuck or need some advice on a critical business decision. Do you have a mentor where you can go to for help when in need?
4. Skills. Do you have the essential skill set necessary to succeed? Do you have enough background in business to take care of some of the fundamental issues when it arises?
5. Originality. Can you think a bit differently from others to distinguish your business from the competition? Can you pursue a niche that will allow you to exploit an opportunity?
6. Market. Is there a big enough market for the product I am going to offer? Is the market right for me? Can I compete in this market? Do I know enough about this market?
7. Strategy. What is your business strategy? How do you intend on growing your business while keeping competition from taking your business away? Have you analyzed your strategy enough?
8. Money. Do you have enough money? Do you have enough credit cards and credit lines that you can possibly tap into? Do you have potential investors that may loan you money or purchase a part of your business? How will you take care of yourself financially? How will you take care of your family?
9. Sales. How experienced are you at sales? Who is going to be your first customer? How do you intend on generating the sales? How do you intend on growing sales?
10. Partner. Who are your partners? Who can you rely on for help? How do you want to work with your partners?
Employee vs. Entrepreneur Mindset
This is a set of mindsets that was taken from a entreneruship notebook I received a while back. It compares the mindsets of an employee to an entrepreneur. I do see that it is a bit biased toward the entrepreneur as it seems to give it a good name. However, in all honesty, entrepreneurs are out there to change the course of our lives in one way or another.
Use this as a reference tool to see if you possess the mindset of an employee or an entrepreneur.
- Has Limited or No Vision
- Strapped in Reality
- Has No Business Plan
- Work=For a Living
- Pursuit of One's Own Interest
- To Produce Results Efficiently
- Seeks Steadiness
- Provides Something that Sells
- Follows Trends
- Has Vision
- Seeks Ideal
- Has Business Plan
- Work=Contribute to Society
- Provide Value to Society
- To be the Best
- Seeks Challenge
- Provides Something of Value
- Creates Trends
Business Plan & Marketing Plan
After reading through the descriptions and questions, and you determine that you do have the entrepreneur mindset, your next step will be to take it to the next step by coming up with a business plan and finding the money needed to get your business in action. The rest of this page will touch on the basics of the business plan and where you can try to go to find your money for your business.
A business plan is often said to be a live document that will continue to evolve as you work through all of the details and start to build your business. Although it is a document that will constantly change as you work to build your business, business plans are an absolute must before you start out your own business. For one, a business plan will help you to organize your thoughts and prioritize your actions. In addition, having a business plan will help you to guide yourself through many of the ambiguity that you will be faced with as you work to build your business.
A business plan can be created on a piece of napkin, on a Word document, or via software sold out in the market place. If you decide to get a software, we personally like Business Plan Pro by Palo Alto (www.paloalto.com). You can also do a Google search to find many free business plan sites on the Internet.
A business plan will be handy if you are attempting to get a loan or investors for your new venture. But more importantly, by writing your thoughts down, and organizing all of the steps that is needed to successfully organize a business, it will benefit you the most. A business plan will prepare you to run a successful business operation.
A business plan should have the following components and points that you need to think about.
- Mission Statements
- Keys to Success
- Company Summary
- Company Ownership
- Start Up Financials
- Start Up Summary and Additional Notes
Your Products and Services
- Summary of Your Products and Services
- Features and Benefits
- Market Analysis
- Market Segmentation
- Target Market Segmentation
- Business Industry Analysis
- Competition and Buying Patterns
Your Sales Forecast
- Sales Strategy
- Sales Forecast
- Explanation and Assumptions Used for Sales Forecast
Your Marketing Plan
- Competitive Advantage
- Marketing Strategy
- Milestones and Schedules
- Explanation of Milestones and Schedules
Your Management Team
- Management Team Summary
- Organizational Charts
- Personnel Summary
- Start Up Funding Figures and Explanations
- General Assumptions
- Forecasted Income Statement
- Break Even Analysis
Your Cash Reserves & Finances
- Forecasted Cash Flow Statement
- Forecasted Balance Sheet
- Financial Ratios
- Strategy and Implementation
- Milestones and Schedule
- Executive Summary
These are points that you should consider to put in your business plan. Try to write at least a paragraph or two about each of the bullets above in order to prompt you to think about these points. Even if the business plan is solely for yourself, it always helps to write it down on paper before you start out your business. This will organize your thoughts, and will help you prepare and run your business well.
Libraries can be a great source of assistance when it comes to learning about business plans. They have numerous books you can check out to read. Ask the librarian about how you can learn more about business plans. The Small Business Administration also has numerous free seminars on how to create a business plan. If you can use some additional help, be sure to check out the Small Business Administration's seminars since they are free to you.
Basics of Creating a Business: Legal Structures
When starting out your business, you must choose between which legal sturcture will fit your needs the most. This guide is not intended to cover any of these legal structures in detail, but briefly, you can choose to take these forms of legal structures:
- Sole Proprietorship
- Limited Liability Corporation (LLC)
- S Corporation
- C Corporation
You must choose between one of these legal structure when starting out your business. We would recommend you go to your local library, and pick up few books by NOLO (www.nolo.com) on these subjects. The NOLO books are very helpful in guiding you through the steps need to form your own company. You can purchase them at Barnes and Noble or Amazon.com, but before you do, you may want to check one out at your local library to save a few bucks. As a small business owner, every penny will count!
Going back to this topic, we can't advise you on what legal structure will be the best for you because everybody has different circumstances. If you want to start everything out fast and quick, maybe you should go with a sole proprietorship. If you have assets to protect, you may want to consider a LLC. If you want to raise money by selling stock of your company, then a C Corp or a S Corp may work. It really all depends on your individual situations.
Research legal structures by searching on Google, picking up copies of the Nolo books, attending Small Business Administration's free seminars, and if all else fails, talk to a lawyer or a CPA to see what will work best for you.
Where to Get Financing
After you have decided on your form of legal structure, you'll need to figure out methods to raise money for your business. Since not having enough money is one of the biggest reasons small businesses fail, it is crucial that you set aside enough money to get you through the tough times as well as for the unexpected.
At the beginning phases, sources of money will be extremely limited. Although you may hear that you can go to the bank to get a loan or sell stock in your company to raise money, in reality, at the earliest stages of your business, raising money by these methods can be very difficult.
Banks will usually not loan you any money until you have been in business with positive cash flow for 2-3 years. And selling stock maybe possible, but at the earliest stages of your business, you may have to undervalue your stock significantly to get any type of real money.
Many small business owners do start their business through the means of using credit cards, credit lines, home equity loans, personal savings, and/or borrowing money from friends or family.
To determine how much money you need to raise, create a thorough business plan that has a detailed start up costs and operational cash flow needed. The financial figures must include costs for rent, inventory, personnel, legal, administrative, and miscellaneous expenses. It is usually good to be conservative by overestimating how much you will need to survive in your business. Always use Murphy's Law when thinking about financials to keep you cautious and alert at all times.
Here are some sayings from the Murphy's Law courtesy of Wikipedia. Try to embrace some of these quotes because in business Murphy's Law happens.
- "Things will go wrong in any given situation, if you give them a chance."
- "If there's more than one possible outcome of a job or task, and one of those outcomes will result in disaster or an undesirable consequence, then somebody will do it that way."
- "Whatever can go wrong, will go wrong"
- "Whatever can go wrong will go wrong, and at the worst possible time, in the worst possible way"
- "Anything that can go wrong, will,"
- "If anything can go wrong, it will, and usually at the most inopportune moment"
- "Anything that can go wrong, will-at the worst possible moment"
Murphy's Law is a nice guideline to use for estimating financials. Keep this in mind to avoid any unexpected turns in your business. It will help you to keep yourself safe from running out of money.
Finding the Money
Once, you have the total figure you need for start up and operating your business smoothly, it will become time to go find the money for you to use. There are all sorts of creative financing methods you can use to try and obtain financing for your business. Here's a brief description and some advice of your realistic sources of financing when you are starting out.
Credit cards are like an entrepreneur's best friend, if you use it right. By maintaining several cards, it can provide you with instant cash, and you can easily have a credit of $10,000-$50,000. The credit cards can be used for both personal and business expenses you will incur.
When you are starting out, one of the biggest challenges of entrepreneurship is making the ends meet of your personal life. Since you won't be getting a regular paycheck each month, you will need to manage your personal cash flow in order for you to keep paying your rent, your bills, and to put food on the table. Credit cards can help you with all that if properly used.
Once in business, you can start to apply for credit cards in your business' name. They will be personally guaranteed by you, so if you are the sole owner, you can use them for either personal or business expenses.. Credit cards that you create with your business tend to give you a higher credit limit thereby giving you additional security.
To use your credit cards wisely, take advantage of the 0% balance transfer offers when you open new accounts. If you have a balance outstanding on other cards, a 0% transfer is like free money each month. Getting approved for a $10,000 credit limit with a 0% balance transfer offer will mean that you can save about $150 per month in interest expense. That is a good chunk of money to save each month.
Another advice we have is to take advantage of some of the rewards programs available. When you run a business, you'll have a lot of fixed expenses that you have to pay each month. If you set up automatic payments for each these recurring payment, you can rack up a lot of rewards really fast. The rewards can help you pay for your business meals, buy books on Amazon.com, or go on that vacation you always dreamed about.
For a small business, American Express is known to be very generous in giving you credit at start up phases. Bank of America, MasterCard, Chase, Advanta, and Discovery are also famous small business credit cards. Always ask the bank that you have your checking account at for a credit card as well. For other recommendations, do a Google search under "small business credit card" and you should find a website that will recommend the best small business credit cards.
You may or may not get approved for a credit line from the beginning, but you can sure try to get one. Basically a credit line works very similar to credit cards, but with an ability to write a check like you are writing it from your checking account. The check that you write will become a balance on your credit line, and you can choose to pay the entire amount or not. Credit lines can be used to pay big ticket items like rent, inventory, and possibly payroll.
Credit lines become a very useful cash flow management tool, and it is especially useful for the cellular phone business. All major banks will have a credit line program for small businesses, and will usually base your credit amount on a percentage (usually 10%-20%) of your annual revenue figure. The annual percentage rate on a credit line is similar to that of a credit card, so they are not exactly cheap, but it is much better than a cash advance from a credit card.
Home Equity Loans
With the recent sub-prime crisis, the environment of home equity loans may have changed a bit. However, traditionally, people have used home equity loans to obtain financing to start their own businesses. It is a good source of financing due to the fact that it does have favorable tax treatments. However, understand that you are putting your home and the lives of your family at risk when taking out a home equity loan. Although it may be a good source of financing, we do recommend looking into the alternatives before tapping into the equity of your home. This is out of experience since we've seen entrepreneurs use home equity loans to end up losing it all for themselves and their family.
Personal saving is the most conservative, and theoretically the best place of financing available. If your business succeeds, all of the company's success can be attributed to yourself, instead of sharing it with your partners. If you fail, nobody except for you is hurt.
Personal savings is a good place to look for financing. Of course, one issue that many entrepreneurs have is that they don't want to use personal saving because they may have been saving money for a down payment on a home or other reasons. Or for many entrepreneurs, they simply don't have any saved up. Understand your situation, and figure out how much of your personal savings you can use to start out your own business.
When you are starting out a business, you can contribute property other than cash into your business. This maybe your car, office furniture, office supplies, or other materials that is of value for the business to use. Be sure to talk with a CPA on this issue as it does involve proper recording for accounting and tax purposes.
You can also generate cash for your business by selling personal assets you have on eBay or Craigslist. Using these services will allow you to turn assets into cash in 7 days. You may need to sell your assets for a bargain, but that doesn't mean that you can't sell items that's been sitting around the garage for years.
Personally, we've sold items on eBay and Craigslist that we've never used in our daily life, and it was almost going to Goodwill for a donation. We were pleasantly surprised to see many of the things that we thought were "trash" sold for $10, $50, and over $250! We are sure you can also dig up that old computer, monitor, or anything around the house that you don't use to be sold on eBay or Craigslist. You will be pleasantly surprised to see what will sell on these sites to generate cash for your business.
Borrowing Money from Friends or Family
One common source of financing is to borrow money from friends and family. Borrowing money from friends and family does not mean that you do not need to pay interest on the loan. You will need to structure it properly by paying an interest rate and signing a promissory note.
To make the offer appealing to the friend or family, you can offer them a convertible note or a convertible preferred stock to them. This will mean that you will make monthly or scheduled payments of interest and/or principal, but the lender has the option of converting it to a share of common stock at a later point in time for a given price. A convertible note or a convertible preferred stock is usually very appealing to both friends and family since they have the option to get a piece of your company later.
Talk to a lawyer or a CPA when borrowing money from these sources using the methods described above. You don't want to take advantage of them since they are your family and friends.
Angel Investor or Venture Capital
Contrary to public knowledge it is extremely rare and difficult to obtain financing from an angel or venture capital. Most of them will never give up seed money to start out your business. You will need to find the initial seed money using your own sources like every other entrepreneur out there. Angel or a venture capital funding will come at a later point in your business when it has reached a point that is somewhat established, and can provide the investors with a significant return on investment.
When obtaining financing from an angel or a venture capital firm, you can expect to lose at least 20-30% ownership stake of your company in return for their investment. These organizations will also expect you to get them a return of investment of about 20-40% annualized return within a five year period. You can disregard these types of financing as you are starting out since they will not fund your business. Just be positive, and use the methods above to raise the initial seed money to start out your business. When the time is right, you may be able to obtain funding from an angel or a venture capital firm.