Victoria: Starting a small business
Starting a business is requires a fair bit of planning and research.
Keep in mind that 80 per cent of new businesses fail in the first four years.
The usual reasons are poor management, poor planning, lack of capital,
and unanticipated market shifts (new technology, new competitors, market price shifts)
When starting a business, most people already have an idea what they will do or what product they will sell. Often its related to a job you've had in the past, sometimes its something you've seen somebody else sell, or its a product or service of your own invention. Its important to evaluate whether you can sell this product or service and make a profit/living doing so.
Its important to identify the target market, as well as the market size and trends. You have to know where your customers are, who they are, and why they will buy your products or service. Without this information, you increase your opportunity for expensive mistakes regarding location, advertising, staffing, even pricing.
Its also important to evaluate the competition. Look at who else is selling similar goods or services. Where are they located, what are there prices, how do they market themselves? Are there big dominant competitors or is the market very fragmented with small players? Can you grow quick enough before they change their offerings to be directly competitive? Can you protect yourself with patents, copyrights, trademarks, or exclusive rights or franchise arrangements?
Now you have to begin your financial evaluation, including the start-up costs. Do not spend any money until you are finished your financial evaluation. While a small or home businesses doesn't take a lot of money, costs add up very quickly. The $1,000 that makes up a big chunk of your take-home pay is a small part of your business overhead. Simple office supplies like letterhead, envelopes and business cards can quickly amount to $500. Design of a logo can cost another $500, or more. Look at where you need to locate, and investigate the costs of space, which can be anywhere from a few hundred to a few thousand dollars. Budget for store and business fixtures, including a computer, desk, and filing cabinet. Consider your communications and marketing costs: telephone, fax, Internet, Yellow pages ads (if you get in on time), a web site, and announcements for your friends and associates. Don't forget lawyer fees, insurance, licences and taxes in your expenses. Do you have enough to start your business?
Next you have to create an operating budget. This is developed using your "business model" as represented on a financial spreadsheet. Estimate your monthly sales, allowing for slower-than-expected growth. Budget for all of our expenses: rent, wages, your salary, cost of goods sold, materials and supplies, utilities, advertising, administrative costs, professional fees,entertainment. Are you able to make a profit? What factors do you need to change to bring your profits into line, and does it all still seem realistic? Many businesses do not make any money in the first year, but you need to have cash reserves for this.
Now evaluate your cash resources. If you do not have enough saved up for start-up costs and first year's losses, you need to look for outside resources. A written business plan is a must if you plan on approaching any outsiders. You might be able to borrow money have a clear business plan and realizable financial goals for the business. First, you should try borrowing from family and friends: they know you and are more likely to "have strings attached". You may consider offering shares in the profits rather than taking loans that need to be repaid. But remember, you're doing a lot of the work, and need to own enough of the business so it doesn't feel like a job where you're working for everyone else. Consider government-sponsored business start-up programmes offered through universities, colleges and unemployment programs. Talk to your bank about your business plan, but remember, they are looking for low risk lending situations. Some of their loan conditions may have them force you to close the business when it's just beginning to "turn around". Be sure to include interest costs in your budgets.
Once you have your finances lined up, you need to get a couple of things arranged:
- Register your business name. There are companies that will perform a name search to determine if your (or a similar) name is already in use. The cost is usually about $40 and takes two to three days.
- For unincorporated businesses, complete a Declaration Of Trade Name form and send it to the Provincial Corporate Registry (they shoul dhave a local office) along with a $30 fee. This usually takes a week to 10 days to be processed and returned.
- In the meantime, you can go down to City Hall and get a business license. This can run anywhere from $25 and up depending on the type of business, needed approvals and location.
Starting and running your own business can be both fun and rewarding, but is a lot of work and responsibility.
Good planning helps, because you have a clear vision of where you are headed and what problems you might run into.