DLO / Thursday, August 1, 2002 / Categories: Springfield Business Journal Article, Blog Post Issues To Consider When Starting Your Own Business Many people have a dream of opening their own business and working for themselves. Owning your own business has many advantages, particularly for women, such as a flexible schedule. Small businesses also involve many risks. For example, a huge percentage of new restaurants do not survive for even one year. Therefore, if you want to go into business, it is critical that you be prepared. One of the biggest hurdles to opening a business and one of the reasons small businesses fail is a need for capital. You will need to acquire space for your business (by purchase or lease, unless you are creating a home based business), equipment and supplies. You will need to pay for insurance, utilities and organizational expenses, such as incorporation fees. You will also need to finance payroll, both for your employees and yourself. The initial phase of a small business can be very difficult for the owner as cash flows out but may not flow in. For example, if you are creating a service business, such as a consulting firm, you may have no cash flow for two months or more. If you bill for work at the completion of a project, work performed on the first day of your new venture may not be billed for several weeks. Typically several more weeks will pass before you receive payment. You also must be prepared for uneven cash flow. Taking all your expenses into account, you need to estimate your required capital. You then need to obtain the capital. The Small Business Administration (SBA) has a "Startup Kit" for small businesses on line (www.sba.gov) that discusses financing options, including: "Personal savings. The primary source of capital for most new businesses comes from savings and other forms of personal resources. While credit cards are often used to finance business needs, there may be better options available, even for very small loans. Friends and relatives: Many entrepreneurs look to private sources such as friends and family when starting out in a business venture. Often, money is loaned interest free or at a low interest rate, which can be beneficial when getting started. Banks and credit unions. The most common source of funding, banks and credit unions, will provide a loan if you can show that your business proposal is sound. Venture capital firms. These firms help expanding companies grow in exchange for equity or partial ownership." Another option is an SBA loan. Vicki Belsher of US Bank was a Loan Specialist with the SBA for 25 years and offers some advice regarding SBA loans. Belsher says, "SBA offers no direct lending programs. SBA provides loan guarantees to participating banks who actually make the loans to the borrowers." Generally, "$750,000 is the maximum guaranteed loan amount. Total loans can exceed that amount, but SBA will only guarantee up to $750,000. These loans can be used to provide working capital, purchase inventory, machinery, equipment, furniture, fixtures, real estate or to construct/renovate a commercial building. Proceeds can also be used for a new business start-up, purchase of an existing business or business expansion." While working at the SBA, Belsher saw businesses succeed, but she also saw many businesses fail. She states that the most common mistakes in starting a new business are the "lack of a comprehensive business plan and under-capitalization." Fortunately, Belsher says, Springfield offers some excellent resources to assist a small business owner. "These resources are available at no cost to potential and existing business owners. One is the Small Business Development Center (SBDC) and the other is Senior Corp of Retired Executives (SCORE). Both organizations can assist in the development and preparation of a formal business plan as well as provide research materials on any number of industries. The local SCORE group is comprised of a number of retired business owners who can provide invaluable insight into business ownership based on their years of experience." Finally, Belsher says, "Business owners must be prepared for the unexpected. Know your business, know the market and be prepared for change. Business owners should develop a relationship of trust with their lenders and keep them in the loop. The partnership between a business owner and a banker is created with one goal in mind - ultimate success of the business." Previous Article Did Martha Stewart Violate SEC Insider Trading Laws? Next Article Bankruptcy: What It Means In The State Of Illinois Print 674