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!

(It’s been a while, with the resolution themed week last week and everything else, but once again Small Business 101 is back, ready to help you start your small business dream off to the right start.  Enjoy the fun of learning what skills you need to make your business a success.)

You want to be a small business owner.  Good; there are certainly plenty of opportunities out there, and if you do have desire to do the needed work, you can make a good go of it.  But desire isn’t enough; as with anything in life, you  needs some skills to back up your plans.  Some of the most vital skills for a budding entrepreneur include:

1) Financial Knowledge: There are many reasons to get into small business; a desire to work for yourself, wanting to put your skills or knowledge to practical use, or simply wanting to do something different.  One thing all entrepreneurs need is a knowledge of financial information.  Knowing how to manage money, balancing income, expenses, and savings, all are important to both individuals and businesses.  If you are the type who lets your spouse handle all the money in your family, you’re going to need to get some help if you hope to run your own business.  Better yet, build up your financial knowledge, take control of your money, and get better at managing your finances; call it practice for managing your business’s finances when you get started.

2) Self-Motivation: When you are your own boss, you need to be able to get yourself up in the morning, get to work, and accomplish everything that needs to be done for your work.  If you are the sort who gets up at dawn on the weekend, goes to the garage and finishes half a dozen projects before noon, you’ve probably got self-motivation to spare.  For the rest of us, though, it can take a great deal more effort to get things done when we don’t have a boss keeping us on track.  If you find yourself struggling to get out of bed on the weekend, you’ll need to find the will power to get moving if and when you start your own business.

Time flies, if you don't manage it properly

3) Time Management: Similar to self-motivation, some of us have no problem prioritizing our tasks, deciding what is most important to finish, what can wait, how much time to devote to each, and what should be done to get all the important tasks accomplished quickly and with time to spare.  For others, though, it’s tricky to get a handle on everything we need (and want) to get done.  Time management is nearly as important to a successful business as money management (perhaps even more so).  Schedules, calendars, and reminders can help you manage your time, but nothing can replace the ability to follow them.

4) Sales Ability: When you are running a small business, whether something as simple as a blog or as big as a restaurant, you need to sell your product.  I realize it might seem a bit less than desirable, promoting yourself and your business like this, but it’s an important part of getting your product out in front of an audience and making a profit.  There are any number of ways to market your business, ranging from simple word of mouth (telling all your friends, who tell their friends, and so on) to elaborate ad campaigns that culminate in a Super Bowl ad just after half time.  The important thing is the ability to simply get your name out there.

5) Optimism: Often neglected from lists like this, optimism that your business venture will succeed is important in, well, succeeding.  If you don’t feel your business will succeed, why bother trying?  This is not to say that you shouldn’t plan in case something goes wrong (at the very least, you should ensure that a failed business venture won’t take down your personal finances), but having optimism and faith in your own skills and ventures is important in your success.   Unlike the rest of the skills on this list, this is the only one you can’t outsource to someone else; you need to have faith in yourself and your business in order to succeed.

There you have it, a list of skills for a successful business person to have.  Develop all the ones you can , hire out the ones you can’t, and do your best to make your business venture a success.

It’s Tuesday, and you know what that means: yes, it’s another edition of Small Business 101!  This week, we’re going to cover one of the biggest issues facing those going from the corporate world into business for themselves: taking care of everything you should do before you leave your job.  Whether you intend to start a small business of your own, get into a different job, or simply make sure you’re prepared in case of a downsizing, there are plenty of steps you can take to ensure that you will be ready when your regular paycheck from work is no longer there.  These include:

1. Building Up a Sizable Emergency Fund: I’ve already discussed emergency funds before, but if you are planning on leaving your place of employment in the near future (or fearful that your company or industry will be cutting jobs), it’s absolutely essential to be sure that you won’t run out of money before you can make your business profitable or find another job.  A standard emergency fund with three to six months worth of expenses might be enough to see you through until your business takes off, particularly if your spouse or significant other is still employed and makes enough money to cover the household expenses.

Avoid looking like this by planning ahead before you leave your job

If you are the major breadwinner, though, you should shoot for an even more robust emergency fund; while I hope that you will soon turn a profit and make your business a success (or find other employment), it’s good to have plenty of money in the bank, just in case.  Shoot to accumulate at least one year worth of expenses; that will give you a nice, healthy cash cushion, as well as plenty of time to allow your business to grow before you really need to have income.  Also, work on lowering your expenses; besides allowing you to stretch your emergency fund further, it’s just plain good for your wallet!

2. Research Health (and Other) Insurance: Amongst your other benefits, there’s a good chance that your company provides you with health insurance, or at least a rather substantial discount on your health insurance coverage.  Once you are no longer working at your current company, you’ll need to purchase insurance on your own.  While you’re still employed, it would be a good idea to look into the costs of buying insurance of your own to cover all the policies currently provided by your company.  Be sure that your new endeavor will provide enough income to cover these additional costs (and the cost of your insurance needs is included in your emergency fund calculations).

3. Have a Plan For What You’ll Do Next: If you’re quitting your job in order to start your own business, this should be pretty simple; after all, you’ve already created a plan for how you’re going to get your business up and running, right?  But it’s worth making a plan for how you’ll build up your clientele, generate income, and generally get your post job life up and running.  The more specific you can be, and the more contingencies you include (after all, sometimes things don’t go as we plan), the better, as you’ll have a valuable road map to your post-employment life.

4. Build Up Your Network: It’s always good to know who you can contact for help, advice, or simply some friendly encouragement.  With some luck (and plenty of effort to reach out to your coworkers), you’ll have a substantial list of references from your professional life, who might be able to provide you with support as you start your own business.  But don’t overlook friends, neighbors, and even family members who might be able to help you in the next stage of your life.  Be sure to join some small business organizations to get help from people who have experience in the field, as well as sharing your own experiences with those who come behind you.

5. Be Sure You Want To Leave: There are many advantages to starting your own business, from freedom to the opportunity to do what you want and earn a living.  But there are advantages to being employed by someone else, as well; regular paychecks, social interaction with your coworkers, and defined responsibilities (rather than having to do or delegate everything involved with the business) are all among the some times overlooked benefits of working for someone else.  You’ll have to weigh the relative pros and cons of your current position with the potential to work for yourself, in order to determine which path you should take.  If you do still feel that you want to leave your job, the previous steps will help to ensure that you can do so without having too much trouble in the transition.

What other actions should someone take before quitting their job?  Would your recommendations depend on whether they are trying to get another job or start their own small business?  How big is too big for an emergency fund?

We’re rapidly approaching the end of the year, a time when we begin to think about what we’re going to do in the coming year.  If you’re like me, your thoughts are probably turning to things like starting or expanding a small business, finding a way to earn money without having to go to work for someone else.  But it’s one thing to think and fantasize about leaving your job and striking out on your own, it’s a whole different barrel of monkeys to actually do it.

There are some people who are cut out to be entrepreneurs, and others who aren’t.  Much as we would like to believe that all we need is a good idea, some start up funds, and maybe a few employees to help us get things off the ground, there is more to it than that.  Some of us just don’t have what it takes in order to be successful as a business person.

Let's See if You're Ready to Be Your Own Monkey!

How can you determine if you have the right traits to be a small business owner?  Why, the same way we determine all personality characteristics nowadays: an online test!  *canned sitcom laughter*  Seriously, though, there are places to look to see what traits most entrepreneurs share.  I like the one from Georgia State, myself, although our old friend, the Small Business Administration, has a checklist of their own.

Of course, since you’re already here, I may as well share the completely unofficial, based only my own experiences (including those with this very blog), Amateur Financier list of Entrepreneurial traits.  *canned audience cheering*  If you are seeking to start your own small business, you should ask yourself the following questions before you get started:

Entrepreneurial Quiz

Are you willing to work hard?

Probably the biggest determinate of the success of your enterprise (at least, of the ones in your control) is how much sweat and elbow grease you’re willing to put into your business or other venture.  I’ve yet to hear of a business that requires little time and effort while still providing substantial monetary benefits (not counting various infomercial claims, of course).  Starting a small business is like investing, putting in time in order to generate a profit in the future.  Working on your business will require significant time, as much as a full-time job in many cases, if not more.  If you are unable to put this level of effort into your enterprise, you’d likely be best served with a less time consuming investment, in something like mutual funds.

Are you a self-starter?

This is an important trait, one that goes hand in hand with out last trait.  When you have your own business, there’s not going to be anyone looking over your shoulder, telling you what to do, setting deadlines, and providing regular feedback.  You’ll need to be your own taskmaster, cheerleader, and manager, or your enterprise will simply fall apart if you don’t force yourself to keep your nose to the grindstone.  (Well, if you have a spouse, they might help you to stay on task, but that all depends on whether they support your enterprise.)  If you aren’t up for this level of work, you’ll be much better off finding a job you like, preferably at a stable company, gradually building up your savings and investments.  (In spite of what Robert Kiyosaki would have you believe, gradually saving and investing while working a regular job is a perfectly reasonable and successful method of becoming rich.)

Are you willing (and able) to fail?

Let’s be honest, many businesses end up failing.  Stores don’t get customers, manufacturers don’t get orders, even blogs sometimes find themselves not getting much traffic in spite of the bloggers’ best efforts.  As an entrepreneur, you need to be able to accept these failures, learn from them, and move on with your next venture, and keep doing this until you find success.  As for the ‘able’ part of this question, you need to be prepared for what will happen if your enterprise fails.  Do you have adequate cash reserves to fall back on?  Do you have a back up plan if your business isn’t a success (or isn’t a success as quickly as you’d hope)?  Is your family going to be provided for should things take a turn for the worse?  Ensuring that you know what do if things go wrong is important to guaranteeing you can try your hand at your own business without wounding your rump.

Are you confident in your enterprise?

Sorry if that last point brought you down, but hopefully your reaction was, ‘I’m prepared for the worst, but my business WILL achieve success’.  Being confident in what you are doing may not automatically lead to success, but giving up on your business before its time is a surefire way to guarantee failure.  The confidence you experience will help determine how much work you put into the business, how inspired any workers are, how much help you will offer to customers, and will generally improve your business’s chances.

Are you creative?

Creativity is one of those nebulous characteristics, which many people attempt to define with only moderate success.  For our purposes, one of the major advantages of creativity is being able to deal with the many issues that will arise in the course of owning a business.  Problems and difficulties will arise while running a business, and not all of them will have obvious, textbooks solutions.  Being able to use your creativity in order to come to solutions for your problems is an important trait, one which is all but necessary if you start a small business and need to figure out how to solve problems.  Learn, grow, and advance your skills, and you’ll end up coming out ahead.  (See?  Spend long enough discussing entrepreneurship, and even a pessimist ends up looking at the bright side of life.)

There you have it; meet these five requirements, and in my opinion, you’ve got a pretty good foundation (that is, yourself and your tendencies) to start building up your business.  Good luck, and enjoy the life of a small businessperson.

(PS. To verify my identity to Technorati, I need to put this code up on the site to verify my identity: QAWWAA6GXBVG  Soon, I’ll be Technorati bound!)