Things To Consider When Starting Your Own Business

1
Things To Consider When Starting Your Own Business

• Alan Barefield
• Associate Professor
• University of Tennessee

2
In the beginning.

• Figure out what type of business you want to be
  in
• Ask yourself why other people or businesses would
  want to buy your product or service
• Determine what your goals are for the business

3
Possible goals

• Be your own boss
• Alternative or sole source of income
• Source of employment
• Spend more time with your family
• Achieve a higher standard of living
• Love of a hobby
• Hang on to what you have

4
Now determine whether the business will work

• Consider two basic components
• What will it take to produce the product or
  service
• How much of the product or service will be sold
  and at what price
• This describes a basic feasibility study

5
On the production side

• What inputs will be used in the production
  process and what will they cost
• Raw materials
• Equipment
• Labor
• How much labor will be required
• What minimum qualifications will be needed
• What types of training will be required

6
On the marketing side

• Who is going to purchase your product
• Is there a similar product in the market
• What is the total market size
• How are you going to penetrate the market
• How much of the market will you be able to
  capture with a given level of quality and price

7
After considering these factors

• Develop a business plan
• Provides a roadmap for your business startup and
  growth
• While the plan should be written, this should not
  be an exercise in composition
• There are six basic components

8
Components of the Business Plan

• Executive Summary
• Description of the Business
• Operations Plan
• Your Market
• Key Personnel
• Financing Plans
• Risk

9
Introduction or Executive Summary

• Contact Point
• Business Description
• Management Description
• Product Description
• Funding
• Financial Information

10
Introduction or Executive Summary

• Provide the business name and contact person
• Goals of the business
• How will the business be organized
• How will the product be produced
• The main tenets of the marketing plan
• What financial arrangements will be required

11
Description of the Business

• Type of business
• Business History
• Business Organization
• Future Plans
• Business Position in the Marketplace

12
Business description

• What products or services will be provided
• Who are the principles in the business
• How will the business be organized and why
• Who is going to be making decisions
• What experience does the management team have?
• Have they worked as a team before?

13
Key Personnel

• Directors and Officers
• Personal Information
• Statement of Integrity
• Labor Costs
• Owners/Investors
• Contracts
• Professional Help

14
Operations Plan

• What are you going to make?
• How are you going to make it?
• What equipment will be needed?
• What personnel will need to be hired?
• What type(s) of training program(s) will be
  needed?
• How will quality be insured?

15
Production plan

• Go back to your initial feasibility study
• Describe the production process in detail
• What inputs are going to be required
• Raw materials
• Equipment
• Labor
• How will you insure quality control

16
Your Market

• The Market
• Target Market
• Present Size
• Your Market Share
• Your Market Strategy
• The Competition
• Who is the competition?
• How does their business operate?

17
Marketing plan

• How are you planning on marketing the product or
  service
• Marketing is more than advertising
• Involves quality, price, available information,
  perceived usefulness
• Why will potential customers purchase the product
  or service

18
Marketing plan

• What is the size of the existing market
• Who is your competition
• How and to what extent are you going to be able
  to penetrate the existing market
• This involves taking market share away from
  competitors
• What advertising outlets will be used

19
Advertising outlets

• Word of mouth
• Local media
• Flyers
• Newspapers
• Radio
• Television
• Trade publications
• Internet

20
Financial plan

• The financial plan should show the liquidity,
  solvency, and profitability of the business
• Should demonstrate the financial needs (borrowing
  needs) of the business
• Consists of three major parts
• Cash flow statement, income statement, and
  balance sheet

21
Cash flow statement

• Summarizes the cash inflows and outflows of the
  business
• Demonstrates the borrowing needs and/or
  additional equity requirements
• Provides a picture of the total liquidity of the
  business

22
Balance sheet

• Provides a snapshot of the financial health of
  the business
• Provides a summary of
• Assets - what the business owns
• Liabilities - what the business owes
• Equity - what the business is worth
• Shows the degree to which the business is liquid
  and solvent

23
Income or PL statement

• Demonstrates the degree to which the business is
  profitable
• Provides a summary of the revenues entering the
  business and the expenses leaving the business

24
Financing Sought

• Financing Sought
• Existing Capital Structure
• Collateral
• Guarantees
• Financial Objectives
• Financial Statements
• Actual or estimated
• Pro Forma

25
Risk

• Lack of company or operating history
• Limited financial resources
• Limited managerial experience
• Market and production uncertainties
• Plans for tragedy

26
You dont have to do this on your own

• Small Business Development Center
• SCORE
• University of Tennessee Agricultural Extension
  Service
• Other government agencies
• Lending institutions

27
Attributes of a successful entrepreneur

• Decisions are made on the bottom line
• Gross revenue is not treated like manna from
  heaven
• If a task cant be accomplished in-house in a
  cost effective manner, outsource it

28
Attributes of a successful entrepreneur

• Employ quality, trainable individuals dont
  become a residual employer for otherwise
  unemployable relatives
• Constantly seek out new products and services
• Grow a market or diversify into other enterprises

29
Attributes of a successful entrepreneur

• They are not timid about tooting their own horn
  about their products or services
• Does not dwell on the challenges of the
  competition realize that some have it and some
  dont

30
What Do Investors (Lenders) Consider Important?

• The Company (15 Weight)
• What business are you in?
• Purpose of the business
• Brief summary of the company, history, legal
  organization, publicly or privately held
• Overall strategy and objectives

31
What Do Investors (Lenders) Consider Important?

• The Product or Service (15)
• Important features and user benefits
• Relationship between the products and/or services
  supplied and market needs
• Pricing strategies
• Present status current stage of develop-ment,
  expected life cycle
• Proprietary position
• Products and projects planned

32
What Do Investors (Lenders) Consider Important?

• The Market and Marketing Strategy (35 Weight)
• Who buys the product and why?
• Comprehensive market description
• Competition characteristics
• What market needs are satisfied?
• Unique characteristics
• Marketing plans and penetration

33
What Do Investors (Lenders) Consider Important?

• Management (25 Weight)
• Background and abilities of key individuals
• How can they do this job?
• What do they bring to the company?
• History of management working together as a team
• Immediate personnel needs and costs
• Organizational structure, decision making
  framework, who holds the authority?

34
What Do Investors (Lenders) Consider Important?

• Financial Summary (10 Weight)
• Funds required
• Uses of funds
• Projections of sales revenues, income, and
  expenses over a three to five year period
• Security offerings planned (if any)
• Payback period estimation for investor
• Funding needs at developmental stages