Five tips for starting a successful small business

Five tips for starting a successful small business

By Marshall Loeb, MarketWatch

7:30 p.m. EST Jan. 23, 2008

YORK (MarketWatch) — Home and small businesses are a $427
billion-a-year industry and if you’ve been planning to launch your own
venture now may seem like the right time to do it.

But before you go into business, try to convince yourself why you
shouldn’t, says Paul Stappas, founder of Bookkeeping Administration
Management, a service provider to small businesses. That approach will
help you minimize the risks associated with impulse-driven decisions
and insufficient research prior to starting your business.
According to Stappas,
it can also function as a litmus test: "If all the analysis is
positive, then you know you have an objective, rather than emotional,
reason for going into business."
Here are his top five tips for starting a successful small business:

  1. Determine if there is a market for your product or service.
    Just thinking you have something of interest doesn’t make it a product
    people would want to buy. Test the market to see if there will be
    demand for your product or service: go to trade shows and network with
    other professionals in your line of business, subscribe to trade
    publications, set up an informal focus group (even if that means only
    your friends and family) to gather opinions. Census figures can also
    help you learn about your demographic. Analyze your findings to
    determine whether your idea is viable, then make adjustments, including
    the toughest one — letting go of your concept and finding another one,
    if necessary. Remember that it takes on average between six months and
    a year to do proper market research.
  2. Analyze the competition.
    For an informal competitor analysis, look in the Yellow Pages and on
    the Internet. That will give you an idea of how many businesses in your
    area offer services or products similar to yours, how established these
    firms are and how many people they reach. For a more precise analysis,
    gather competitive intelligence from public sources, such as competitor
    sales literature, press clippings and annual reports.
  3. Develop a five-year business plan.
    That lets you know what kind of capital you need to get started and
    succeed. A good plan encompasses overhead expenses (including the
    owner’s potential salary), cash flow (the frequency with which a client
    is going to pay you) and start-up capital. "Never go in with less money
    than you should," says Stappas. "Partial funding can easily slip into a
    black hole, and then you’ll need even more money than you initially did
    to offset the loss and continue setting up your business."
  4. Get your books in order.
    Having your bookkeeping done accurately and on time tells you whether
    you’re making a profit. That, and not sales, should be your focus,
    according to Stappas, who says the majority of small-business owners
    mistakenly focus on the latter. For example, sales alone won’t tell you
    if your vendor has increased its prices, and you might not realize it
    is time to pass along the mark-up to your customers.
  5. Incorporate your business to separate your financial and personal assets.
    Incorporating protects you from personal liability and from exposing
    your personal assets. What this means is that if your business goes
    bankrupt, or if an employee gets into a car accident while on company
    business, you won’t have to forfeit your house or car to cover
    litigation and losses. In addition, incorporation provides certain tax
    benefits, such as long-term-care insurance, which if bought by your
    corporation would be 100% deductible.

Marshall Loeb, former editor of Fortune, Money, and the Columbia Journalism Review, writes for MarketWatch.


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