As the economy recovers from the worst slump since the Great Depression, many people who used to work for large businesses have had to carve out new niches for themselves. Many are choosing to transfer their unique skills, interests and resources into starting small businesses, with excellent results. Nonetheless, opening a business from scratch can present managerial and administrative challenges for the new entrepreneur. This article compresses several volumes of business administration guidance into a usable beginner’s guide that will get new small business owners started on the right track.
For Students, Entrepreneurs and Individuals Hoping to Launch Their Own Business
The Small Business Administration (SBA) identifies 10 steps to starting a business, and although relatively simple, starting with a checklist can be very helpful. The SBA recommends that potential entrepreneurs carefully analyze their personalities to determine if they have the discipline, decisiveness and competitiveness necessary to thrive in the business world. New business owners must be sure they’re ready to make the large commitment, in terms of time and money, to start a successful enterprise.
New entrepreneurs are then encouraged to write a business plan, often with help from business professionals. Most plans require a clear articulation of goals, identification of the industry and business, an analysis of the business and its competitiveness, financial considerations and marketing strategies. It is important for the small business owner to clearly state how he intends to operate and manage the business on a daily basis.
Next, the entrepreneur must find a business location, decide on legal ownership (proprietorship, partnership, L.L.C. or corporation), hire qualified people while arranging to collect and pay taxes, and get the necessary permits and licenses. Additionally, in today’s media-driven age, patent, copyright and trademark issues can always arise. New business owners should take steps to avoid violating anyone else’s rights.
Last but not least, the entrepreneur must arrange financing, which is typically done with either debt or equity. With equity, when available, the small business owner must decide if it’s the right choice. For example, if the business will be a partnership and each partner contributes cash in exchange for shares, equity financing is a good option; on the other hand, if the entrepreneur has to give shares to his mother-in-law in exchange for money, maybe a bank loan is a better option. Of course, banks expect security (like a second mortgage on the family home) and charge interest, so this form of financing is not for everyone.
For Startup Business Owners
Tedious, but necessary, recordkeeping is the bane of the unprepared small business owner; luckily, there are some tried and true processes to help the entrepreneur keep track of their paperwork. One highly recommended method is the DIRKS system of investigation, activity analysis, identify recordkeeping needs and strategies as well as existing systems, system design, implementation and review.
Marketing is also a key component to any business, and a number of helpful resources exist to help the new entrepreneur get his message out. The Houston Chronicle recommends simple steps, like carrying and distributing business cards, as well as more thoughtful ones like developing a simple consistent message. Other necessary steps, such as keeping current customers happy and participating in free events like trade shows and high school career days, are easy to lose sight of when caught up in daily operations, and entrepreneurs are cautioned not to forget.
For someone considering a startup based out of his house, the SBA has some helpful guidance on the pros and cons. For example, home-based businesses have unique opportunities such as tax advantages, cost savings on child care, lower startup costs and flexible hours. Some disadvantages to working from home include disrupting family life and space with business activities, working in relative isolation and, thus, maintaining the discipline needed to be productive.
For Early Stage Business Owners
One challenge for a new small business is proper inventory management, which, traditionally, relies heavily on reliable and current data. The best-run small businesses ensure accurate and timely data, such as purchase order and demand information, by developing and maintaining proper collection, auditing and forecasting methods.
Although there is an element of risk with any undertaking, there are a number of risk management steps small businesses can take to limit their exposure. Entrepreneurs mitigate operational risks (failures with internal processes) and market risks (adverse changes within the market) by anticipating and planning around them. Likewise, small businesses manage risks with their credit by being selective about how they extend it and/or by buying insurance to offset any defaults.
Personnel can make or break any business, and it is important for the entrepreneur to clearly identify her human resource needs prior to hiring. Many recommend testing job candidates by having them do parts of the actual job during their interview.
Similarly, the best employees will likely expect to receive health, retirement and leave benefits, even from a small business. New provisions in the Affordable Care Act make it easier for many small businesses to provide health benefits by offsetting the costs with special tax credits and low-cost marketplaces. Nonetheless, employers should know that Obamacare does not require any business to provide its employees with health insurance, and in fact, businesses with 50 or fewer employees will suffer no penalty for not doing so.
For Emerging Business Owners
Like a great garden, for a business to thrive it must be fed, watered, weeded and tended. Some of the best growth strategies include increasing sales to present customers, advertising and promoting in new markets, introducing new products to the existing market, increasing efficiency with new technology upgrades and partnering with other businesses.
Human resources will remain a concern for any business, but particularly to the small one where a single employee often has many vital responsibilities. To protect human capital, small businesses are encouraged to expend time and resources on HR basics like training, conflict resolution and performance management systems.
One of the best methods of managing performance is with an audit checklist. Key elements of the audit include managerial and operational performance and financial oversight. Audits ensure that contingencies, like loss of a supplier, are planned for, and that bills and taxes are paid in a timely manner.
Nonetheless, there is more to financial management than just auditing, and one of the biggest issues regularly faced by small businesses is cash management. The savviest small business owners keep their books current and are aware of their daily cash balances. It is also highly recommended that business owners have a good forecast of what their anticipated cash flow will look like six months in the future. While it’s not rocket science, there are so many details to be tended to in a small business that its administration can seem overwhelming. Luckily, the resources listed here will help you manage your startup from day one.