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Front Page » August 28, 2008 » Business journal » Start up right $$$$$$$$ Or fall down hard: Starting a sma...
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Start up right $$$$$$$$ Or fall down hard: Starting a small business is always problematic, but also exciting


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By RICHARD SHAW
Sun Advocate publisher

The American dream is a complicated one. Having a home, raising a family, putting the kids through college and having some fun.

In the middle of this, comes work; work that must be done to accomplish the dream. But for many people, working for someone else is not part of the dream, but owning their own business is.

Many dream of owning a business of their own. Many also fail, because they are not realistic about starting up a business. Usually those failures are due to a number of things.

If it was easy to start and maintain a successful business, everyone could do it. However, what is really true is that if the basics tenants of starting a business are followed, and the expertise and drive are there to make a business go, then many businesses would succeed while those without those things ultimately fail.

Starting a business is more than an idea; the concept for a business a person has may be good, but it takes much more than that to make a business go.

Think of starting a business as a research and development project. There is a beginning of the project and there is an end to it. In a business start up the beginning is testing the idea to see if it is something that is really needed and will be accepted by people who are potential customers. A dream of one person may not be the needs of another. Many people pour money into a project because it is their dream, but that is not enough; there has to be a sustainable market for it. That means that the person starting the business has to look at the future.

Ethan Migliori, the director of the Small Business Development Center for Carbon and Emery County, says that there is a real combination to starting up a business.

"You need to understand the market, the population trends in your market, and get an idea of what the startup and operational costs will be before planning a business," he said.

If the business is going to be built on a single product or service, then a real study of what is coming down the pike should done. A lone product or service can easily quickly become outmoded or dominated by a larger company, which could spell doom for the small business.

Targeting is also important. Starting a convenience store, where one tries to be all things to everyone who walks in the door, is very different from forming a recreation business that teaches people how to fly fish. A market must be reachable, and it must either be ripe or one that can be ripened. Starting the same business that three other people have on the other corners of an intersection generally does not work very well.

"People who start up businesses understand what pies they can cut and which they can't," says Migliori. "If a pie in a market gets cut too many ways, everybody loses. And the fact is even if a person has a good business and another has a poor one in the same market, if the poor one is the established business there is a good chance the better one will fail because it is very hard to take away someone elses business base."

Once the idea has been studied and proven to be something people would want, then the money to back the business comes into play. The media is full of stories about people who started out with a business in their garage and $17 in their pocket. They make it sound like this is common and easy to do.

In reality a person that wants to start a business may only have $17 in their pocket, but in most cases they soon realize that little money added to early sales usually does not a business make. Start ups take money, so a source must be secured. In actuality the best business opportunities are the ones that pairs up the ability and means to raise cash for the start up.

"The first thing I tell people who want to start a business is to have a good credit score," says Migliori. "Without that no one is going to touch them when they need money."

Migliori also says that anyone who wants to start a business should have 20 percent of the cash they need for working capital in the bank.

"Banks don't want to fund working capital," he says. "People need this kind of money for at least the first six months of their business so they can meet their bills."

More cash than that is certainly good if the start up has it; however most small businesses must sooner or later (usually sooner) find a backer to make the business go. This can come from one or a number of sources.

Those sources include banks, personal assets (either leveraged or sold), credit unions or personal backers. If personal backers are used, be sure they know the risks that are being taken with their money. There is nothing more uncomfortable than having a personal backer who expects to see a return on their money and finds that the principal has been used up and there is no value into that which they have invested.

Businesses can also get into trouble by over reaching their working capital and thereby having to sell inventory to pay the bills without replacing it. At some point either goods or materials need to be replenished, and without some cash to back up the purchasing power, things can go down hill quickly.

The skills to run a personal small business are also important. Someone who starts a business needs all the skills (or access to them) to run a business. For instance a person may have great skill at developing or building a product, but do they have the sales and marketing skills bring it to customers, the money skills to operate the enterprise and the management skills to run the company day to day, especially when employees become part of the mix?

"I tell people that they should visit at least two people when they start a business," says Migliori. "One of those should be a lawyer so they can understand the laws involved in running a business and the other is an accountant so they set up their financial situation and taxes correctly."

Migliori says he has seen too many small businesses that start off without knowing about laws and finance and soon find themselves in trouble because they are not following worker compensation laws or have been selling products and not charging sales tax on them.

Most people who want to start a business have an idea of what they want to do. But regardless of experience, it is a good idea to get counseling and training in starting up a business.

"One of the things I suggest all small businesses do is have an advisory board," states Migliori. "Many people get into a business and become embarrassed about problems within it or too prideful to ask for help from others when they need it. That's what a board can do for a person. They are a kind of coaching committee to fine tune the business game that is being played."

Another good source for learning to run a small business in the local area is Migliori. His agency supplies various kinds of training for business and start up business basics. His Nextlevel and Fastrack classes can help people who want to start businesses for the first time, or even those that have run businesses before.

Disillusionment is a big problem in the start up business world. Often it has to do with expectations that aren't attained. Sometimes the business just stops being fun like it was in the beginning and people lose interest.

"I see people all the time who start businesses based on a hobby they have had for years," stated Migliori. "There is usually a lot of commitment and dedication to that kind of a business, but sooner or later the hobby becomes work. Many get burned out and close their businesses down."

Another source of disillusion is the fact that a leader of a business is responsible for everything that happens in that enterprise. If someone doesn't show up to work, they must fill in. Startup businesses mean long hours, sometimes little sleep and a lot of waiting for money to come in to pay bills that are begging to be paid. The pressures can be intense, especially when a market changes or the mortgage payment is due. It takes a tough person to get through the hard times and to realize that even in the best of times things can still be precarious.

(For more information on the SBDC and what they can do for budding entrepreneurs call 435 613 1438 Ext. 450).

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August 28, 2008
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