10 Things to Consider Before Starting A Business

Why many people desire to pursue self-employment opportunities?

My humble answer to this question is people decide on becoming an entrepreneur for self-satisfaction and putting their passion to a reality, desire for independence, limited job opportunities, downsizing and restructuring of corporations, downsizing of work forces, threats of lay-offs, unlawful termination of contract, corporate politics, unhealthy working environment, and many others.

Indeed deciding on becoming an entrepreneur needs a full scale bravery and untarnished solid steel shield of virtue, optimism and patience to overcome fears and failures. Unleash the firm entrepreneur spirit in you as it is the only first step of a long journey to successful entrepreneurship.

We will be together in this quest for successful business venture. Dam Ramsey in his book "101 Best Home Businesses" suggests these ten steps in deciding what business to start:

• List 5 things you do best
• List how others would benefit from what you do best
• Find out how to give people what they want
• Learn the value of your service to others
• Find out who else offers similar services
• Learn from the successes of others
• Learn from the failures of others
• Plan your own success
• Make low cost mistakes
• Enjoy what you do and how you do it

Also, here are the ten important things we all need to know when starting a business according to George Rodriguez, an author of powerHomeBiz.com. (Please note that I have deleted in purpose some suggestions which in my opinion do not apply when starting a business in the Philippines):

1. Know what you will do. When making the decision to start a home business, the first question you need to asks is "What will I be doing?" Will you start a pet sitting business, or do what everybody else is doing and start selling on eBay? Will you open a physical store or will you be selling on the Web? Will you buy into a business opportunity or  join an multi-level marketing (MLM)? Will you go with something you love, or something you think could earn you money (they don't always come hand in hand)? There are so many options out there, so many types of businesses that you can start that it is not easy to find the right business to start.
2. What will you need to start? After you have decided what to do, the next step is to find out how to do it. Do you have the necessary skills required by the business? If you want to start a catering business, for example, can you actually cook or can you find someone to do the cooking for you? If you want to start an event planning business, do you have certifications from any of the event planning associations? If you want to start an online business, do you know basic HTML? Make a list of what you think the business needs and what you need to have to achieve success. It may be knowledge about the business, skills required, certifications needed, equipment and machineries you need to purchase. Then check if you possess the knowledge, skills, etc. now; and if not, plan on how you can get it.
3. What are the government regulations you need to follow? One of the first things you need to make sure when starting a business is that you have all the government requirements you need to operate the business. 
4. How much money do you need to start? This is a basic question that could impact what business you can start. It is one thing to want a particular business; and another to know whether you can actually afford the business. If you have been dreaming of starting a restaurant business but you only have P5,000 in your bank account and and you do not think you can get a loan from a bank, family member or investors, then you may want to downscale your entrepreneurship ambitions until your financial situation improves. So how do you find out exactly how much a particular business requires? One way would be to find if any books have been written on how to start the business you have in mind. Often, these books contain estimates and const descriptions required to start the business. Check your local library or favorite bookstore for any books about your business. You can also research the internet if there are business plans available about the business, or costing information. You can also check with a current business owner - while they may not tell you how much they spent in starting their business, they may be more open about possible cost items and what to expect when starting a similar business.
5. How much money will you make? The amount of revenue your business will earn will depend on so many factors that it is really hard to predict how much you can earn. The mileage often varies, and you can never tell until you try it. But having some idea of what the range of earnings can be can help push you. The high estimate can motivate you to strive harder; while the low estimate can give you some sense of acceptable income parameters. General business idea books or books dealing with starting the particular business often give income potential estimates. You can also check industry associations for studies or papers showing income ranges of their members.
6. Where can you get help? Sometimes, try as you might, there will be moments when you feel you need to get some advice or help with regards to strategies you want to pursue. Especially if you are a one-person business, it can be easy to get overwhelmed by all the decisions you need to make as a small business owner. Having someone to guide you, give you counsel, even open doors for you and introduce you to customers and financing resources is literally, heaven-sent. A mentor can sometimes show you a proven roadmap to your business success.Many studies have shown that business owners with mentors to help them showed more growth in their business than those who do not have. One caveat though - mentors are different from coaches in as much as mentors generally provide their services and advice for free while coaches charges you by the hour. 
7. How do you intend to reach your target market? One of the worst mistakes you can make when starting a business is to assume that customers will flock to your business immediately. They won't, and chances are, you will have to work hard to find your customers and tell them about your product. It's a common story among small online entrepreneurs who launches a website and expect to earn money the next day, only to be disappointed when their first sale comes six months later. When you start a business, it is crucial that you know your target market and how you can reach them. A marketing plan can help you think through your marketing strategies as it helps you create your positioning statement, identify your target customers, and formulate strategies with corresponding timelines on how to reach them. You can go to Mplans.com for samples of marketing plans.
8. How can you get started? This is step where you actually plan out the specific steps to start and operate your business. This stage includes checking if you have everything the government requires for your business, from licenses, permits, etc. If you are starting a daycare business, check with the childcare licensing office in your country/city if you have everything that you need. You must have completed your business plan at this point. Even if you are not applying for a loan, your business plan is crucial as it helps you think through your business and what you actually need to do. It is your roadmap to success, and without it, it is hard to navigate through all the ups and downs of entrepreneurship. This is also the stage where you finalize your pricing, making sure that you are not overpricing yourself out of the market while covering all your expenses.
9. What tools can you use to operate and improve your work? Technology should be your best friend. How can computers help you increase your profits? What gadgets do you think can help you improve your productivity? Are there any software or scripts that you can use to make business life easier for you? If you can automate routine practices, so much the better. Simple things like a script to automatically update your website's date and time can allow you to work on more important things your business needs. Or if you can automatically handle subscription requests for your email newsletter, the time you save in manually doing the tasks can allow you to focus on marketing or improving your products. Be open to technological innovations, and find out how they can be used for your own purposes.
10. Your exit strategy. I am a firm believer of the saying "You don't start out by giving up." Having an exit strategy does not mean you are giving up; you just need to know when to say goodbye, and under what circumstances will you say goodbye. Thinking of an exit strategy while just starting a business is not about pessimism, rather it is about smart planning. Your exit strategy ties well with your objectives for starting the business. Are you thinking of developing the business to sell it off for a sizeable sum, allowing you to retire early or start afresh with a new business project? Are you envisioning that you will turn over the reins of the business to your children? Or are you thinking of taking the business public? The problem is that many small business owners do not have an exit strategy. As a result, they are unable to plan exactly how to reach the goals they have set out for themselves when they started. They are not able to maximize the sale value of the business and ensure that it is attractive to buyers. Or they have not been able to create a business that investors would want. They have no succession planning in place. I have seen many entrepreneurs who wanted their children to run the business eventually, but since this was not planned out at the very beginning, they were not able to build interest for the business among their children, or their children were not properly trained to run the business. A realistic and tangible exit strategy should be a critical component of your business plan.

Writing a Business Plan

Venturing to a new business is not easy.  It requires a lot of patience, financial resources, time, talents and a lot of know-how. After you have made the preliminary decisions as to what product or service line you choose to sell, you can proceed to formulate a business plan. There is no such thing as an all-purpose business plan. You should write your business plan according to the unique factors and conditions of your enterprise. However, you will find it useful to write and use a business plan along the broad guidelines suggested below:

1. State Your Objectives. This section comes first in a business plan. You tell your reader who you are, what your business goals are, and when you expect these goals to be accomplished. If you are submitting your plan to a bank, you may indicate how much you want to borrow and what you plan to do with the funds.

Example of Stating Your Objectives:

“Claier” is an enterprise involved in the manufacturing and retailing of ready-to-wear ladies’ dresses. Its goals are:

a. To start manufacturing and retailing by January 2000

b. To achieve profitability by January 2001

c. To seek adequate financing for the first 18 months of operation

2. Describe the Business. This section gives background information on your business and how it is currently doing:

For a new business. Instead of a brief history, explain what the business will be, how the idea for your business was conceived, and how the business is expected to develop.

For an existing business. Provide the following information: business name, date and place of registration, when actual operations began, a brief history of your business, and names of owners, partners, or major investors.

3. Describe Your Products or Services. Give a detailed description of your products or services so the reader gets a clear idea of what you are selling. Also give any applications or uses of your products that may not be apparent.

In this portion of your plan, you should also note the competitive advantages your product has over other similar products, as well as identify the products you will be competing with. You should be able to state your product’s advantages and disadvantages.

4. Identify Your Potential Market - Determine who are your present or projected customers and how many. Be as specific as possible. Are you selling to bookstores? A grocery store? A small ladies’ boutique? If you are selling to the general public, you may need to group potential customers according to age, gender, income, education, and other demographic factors. You then ask yourself how you can make use of the information. If, for example, you know that your potential customers will likely be children between three to ten, what does this tell you about your location? Your advertising? Your prices?

5. Identify Your Competitors - Rather than pose as threats to you, your competition should drive you to do your best. Learn as much as you can about them. Include the following information in your plan:

a. Description of competitors – Identify businesses likely to become your competitors. Name them.

b. Size of Competitors – Determine your competitors’ assets and sales volume.

c. Profitability of Competitors – Which of your competitors are making money? Which are losing, and by how much?

d. Operating Methods – Determine the operating methods of each of your major competitors in terms of pricing strategy; quality of products and services; servicing, warranties, and packaging; methods of selling and distribution channels; credit terms; location; advertising and promotion; reputation; and inventory levels. Discuss only the items relevant to your business.

6. Consider Your Pricing Policy - In pricing your goods and services, all relevant factors should be considered, like cost of production and distribution as well as the degree of acceptance by the market. Another factor to consider is the pricing structure of your competitors. Of course, the aim of your pricing policy should be to set the price at a level that maximizes profit in the long run.

5. Determine Your Marketing Methods - Having a good product at a reasonable price is not enough. Your business plan must answer the following questions:

a. How will you promote or advertise your business?

b. How will you sell your product? Will you employ salespeople?

c. What channels of distribution will you use to reach your customers?

d. What do your customers think of your product? How can you improve your image as an enterprise?

6. Determine Your Key Personnel - Identify the key people in your business, including you as the owner and manager. If your business is a corporation, list the names and addresses of all directors. If your business is a partnership, list the names and addresses of all the partners.

7. Identify Your Material Requirements and Sources of Supply - List down what

materials you will need and where you will get them. Include only direct materials; office supplies and other indirect materials should not be included in the list.

You should prepare a table for the materials. For each of them, state how many suppliers there are, who your main supplier is, and why. Your readers will see that you have carefully thought out who your best supplier will be.

8. Determine the process and equipment you will use to manufacture your product - give a detailed explanation of your production process. For each step, explain the work done, as well as the equipment and materials used. If you are presenting a complex process, include a diagram showing your work-flow. Assign positions for the jobs that need to be done and estimate how many people you need to employ for each position. Set salary rates, too.

9. Prepare a Sales Forecast - Include a sales forecast that covers at least two years of operation. For the first year, present your sales on a monthly basis. Present the forecast of the succeeding years on a yearly basis, and explain how you arrived at the figures and at the assumptions on which they are based.

10. Prepare a Budget - In manufacturing, production costs of materials, labor, service,manufacturing overhead, and other components should be budgeted. A service business should budget operational costs. Sales costs should include selling and distribution, storage, discounts, advertising, and promotion. General and administrative expenses include salaries, as well as legal and accounting costs. Projections should be prepared every month during the first year of operation and every quarter for the second and third years.

11. Set Your Plan to Work - You are ready to set your plan to work. It is time to raise funds, obtain a license, purchase facilities and supplies, hire and train people, and start operating. Remember that if you are to succeed, you must be prepared to work long hours and must be totally committed to your business. 

Source: dti.gov.ph

Types of Business According to Ownership

Would you want to run the business on your own, with a partner, or with more people? Weigh the odds:

1. Single Proprietorship (one party)

Advantages:  Easy to set up; Decision-making left entirely to owner
Disadvantages: Demanding on owner's personal time; Growth limited by owner's financial means.

2. Partnership (at least two parties)

Advantages: Relatively easy to set up; Check and balance maintained with two parties around.
Disadvantages: Any personal rifts between partners may dissolve partnership; 
Equal profit sharing despite unequal attention and time given by partners to business.

3. Corporation (at least five parties)

Advantages: Maximum flexibility for growth; Limited liability of individual shareholders; Greater room for professionalism in management; Is least likely to dissolve.
Disadvantages: Complicated setting-up process; Individual stockholders may have limited influence on management; Tendency to institutionalize a bureaucracy.

How to Plan Your Business

Determining Your Product/Service Line

To start a business it is vital that you carefully plan and determine your product/service line. You will invest your time, money and will to build it and let it grow. Focus on what specific type of product or service you want to sell. Some of the factors provided for consideration will help you come up with a great idea for a product/service – what specific field are you interested in? Can you apply your skills or background work experience to this field? Provided below are the different types of product/service lines:

1. Product Industries - You may choose to manufacture your own product, either for the mass market or for specialized or individual demands. Canned goods, wooden or plastic toys, and ready-to-wear garments are examples of goods produced for the mass market, while precision instruments for industrial use of made-to-order furniture are examples of specialized products.

2. Process Industries - You may decide to perform only one or two operations in the total manufacturing process. If so, you are not, strictly speaking, a “manufacturer” but rather a “process” enterprise. The activities you perform can be initial operations on raw materials (milling, corrugating, sawing, or cutting), final operations (fishing, assembly, packing, or binding), or skilled or precision operations (embroidery, testing, woodcarving).

3. Subcontracting Industries - If you choose to be a subcontractor, you will undertake subcontracting work for other industries, usually bigger ones. Bigger industries sometimes subcontract the manufacture of components, supplies, or other specialized operations to smaller shops because the quality required is not viable for their high-capacity operations. Many big companies also find subcontracting a more low-cost and faster way of manufacturing products. Also, you are assured of a market for your products. You can also avail of technical and financial assistance from the big companies. One drawback of subcontracting, though, is that you rely on only one firm or two for your survival.

4. Service Industries - You could choose to sell services. Service enterprises include repair and maintenance shops, printing and machine shops, and food catering establishments. Beauty parlors, dress and tailoring shops, recreation establishments (bowling alleys and billiard halls), and entertainment enterprises (theaters, discos, and pub houses) are also considered service businesses.

5. Retailing - It is the most common type of trading enterprise. Retail consists of the sale of physical goods or merchandise from a fixed location, such as a department store, boutique or kiosk, or by mail, in small or individual lots for direct consumption by the purchaser. 

Sources: dti.gov.ph; Wikipedia