The Amateur Financier

(It’s time for yet another edition of Small Business 101.  We’ve covered many of the basics of starting your own small business already, from types of corporate structures to sources of funding.  But there’s still one big question we have yet to answer: what type of business to start?)

One of the biggest decisions you’ll have to make when starting a business of your own is what type of business you should create.  Besides considerations like whether to become a franchisee or start something entirely from scratch, there’s also any number of different business types to consider.  Do you want to be a butcher, a baker, or a candlestick maker?  (Or much more likely, something much more modern.)  While deciding which business to create, there are several considerations to keep in mind:

1) Your Interests: If you love the type of business you’re starting, you’ll be more inclined to do all the work required to make it a success.  Think of your experiences as an employee (if you’ve had any, of course); when you were doing work you really liked, you were (likely) much more likely to give it your best effort than if you didn’t like what you were doing.  If you are your own boss, why make yourself do work you don’t like?

Your Task: Make a list of your interests, the things you could see yourself doing for a long, long time and still enjoying.  Try to come up with at least five different ones, preferably as diverse as possible.  (For example, I might put anime, chemistry, teaching, mathematics and writing.)  For each interest, come up with a business idea that would allow you to turn that interest into an enterprise.  Don’t worry about everything you would need to do to make that business a reality yet; we’re still just exploring the possibilities.

2) Your Skills: It takes many different skills to run a business.  Some are particular to a particular business or industry (knowledge of how to cook, or video game playing skills), while are broadly applicable to just about every small business, like accounting and sales.  It’s possible to hire out most, if not all of the skills needed to have a successful business, but when you’re just getting started (especially if your business consists of only you), the more you can do on your own, the more money you’ll be able to keep and put into expanding and growing your business.

Your Task: Sit down and write out the abilities you currently have, from effective creative writing to mad video gaming skills.  Then, create a list of skills that each of the business ideas you generated above would require (hint: start with this list of vital small business skills, and build on to it with the particular skill sets required for each business).  Look where these lists overlap; those are the areas where you have the skills needed to make your small business a success.  Don’t worry if you don’t have all the skills you need; those are just the things you’re going to have to look for in employees or a partner.

3) Your Resources: Unfortunately, no business can be started by sheer force of will; you need to have the resources available to make your business idea a reality.  The most commonly cited one is money, since the amount of capital you have available to start your business will be a major determinant of which type of business you are able to start.  But don’t forget resources like access to technology, potential employees, and time; the total picture of your resources will involve everything you could put to work in your business venture.

Your Task: Here’s where it starts to get harder; you’re going to need to do some serious research into the costs of starting your desired business.  Depending on the particular business you are considering, these could include any or all of the following: building expenses, supplies, advertising, employee salaries, consulting costs (including accountant’s and lawyer’s fees), time you have available to build your business and taxes.  It might take a little time to figure out everything you’ll need, and how much it will cost, but the information will be vital to your business.  Then, go through and see which resources you can provide with your current assets, and which you’ll need to get elsewhere…

4) Your Ability to Acquire Further Resources: Depending on your current financial situation and costs of the business(es) you’re considering, that last step may have shown you that you have everything you need to get your business started (because your desired business has low start up costs and/or you have a lot of money available), or that your own resources fall short of what you need.  In the latter case, it’s time to come up with some alternate sources of money (and possibly other resources) in order to get your business off the ground.

Your Task: It’s brainstorming time, as you attempt to come up with the money you’ll need for your business without putting your other goals or desires at risk.  Personal savings are a good start (although you should be very, very careful about tapping retirement funds; besides facing stiff penalties and taxes if you withdraw them before retirement age, you’ll also put your retirement at risk if your business fails, as I’m sad to say many of them do), although you can also look for loan from a variety of sources, such as family, friends, peer to peer lending organizations like Lending Club, and traditional business loans from banks or credit unions.  Be aware that all have their own pitfalls (loans from family and friends can lead to schisms if you have trouble paying them back, banks usually require proof that your business is already profitable, and failure to repay a Lending Club loan can lead to legal action), and choose your source of funds accordingly.

5) Your Competition: Finally, before you throw money and effort into building your small business, you should take a while to scope out the competition.  Unless your business is serving a very small niche (in which case, you might have trouble finding enough costumers if you aren’t in a well-populated area), chances are that you’ll be facing some competition, from online sources if not other stores in your area.

Your Task: Take a good luck at the other business currently attracting your target customer.  Look at offline stores that offer the same goods or services on which you wish to focus; if you’re planning to sell books, look at other bookstores in the area.  Are there many of them near your intended site?  Is there a niche you could serve that they’re currently missing (say, used books or books in a foreign language)?  Look at online competitors too; if you have an online presence (or are entirely online), can you match them on price or convenience?  Can you provide services or information that they do not?  Do you have some other way to make your services stand out?  Knowing the answers to these questions is vital to making a good business plan, and having your business succeed.

Hopefully, as you go through this list and these exercises, you’ve been able to flesh out your business plans more fully, and to get a better handle on what type of business is best for you and most likely to succeed in your area.  Good luck, no matter what type of business you start!

• Book Review: Master Your Money Type
• Book Review: Start Over, Finish Rich
• Small Business 101: Are YOU Suited to be an Entrepreneur?

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