According to the Small Business Administration (SBA), women-owned companies are growing much faster than every other segment of new business in our economy. Many of these companies started small, started by females seeking the interesting and potentially fulfilling experience of “being their own boss” while carrying out something they enjoy. If you’re considering starting your own business, you’ll need a sound plan, a little imagination, personal dedication, and probably some form of financial investment
“Before you make the commitment to starting your own company, you’ll need to determine whether it’s the right move for you,” says Martin Walcoe, EVP of David Lerner Associates.
Here are a few crucial factors to consider.
Why do you want to start a company? Generally, you should believe you have a great idea that you are passionate about. Giving your company a chance to be prosperous will call for a personal dedication and probably some sacrifices. Are you prepared to invest the time, money, and personal resources to get your business started?
As you might imagine, there’s a lot that goes into starting a business. You’ll have to do some market analysis to determine the potential size of your market, identify the competition, and set the price of the goods or services you’ll offer. You should develop a written business strategy, research the best legal form to use for your business, and understand what licenses and/or permits you’ll need. And you’ll have to figure out how much capital you’ll need to start your company, and where that capital will come from.
What type of company do you want? Do you have a unique idea, or do you want to get involved in a kind of business that already exists, like a franchise? What services or products will your business provide? Have you identified your target market? Who is your competition, and what will separate your business from your competition? According to the kind of business, how long will it take before your products or services are available to your target market? How big and how quickly do you want your business to grow?
The kind of business you choose should not only match your talents, abilities, and interests, but it also should have a viable place in the market, based upon your competition and the prospective demand for the products or services your business will offer. Understanding this information will take while and effort, but many businesses fail simply because they’re in the wrong market or the competition is too strong.
It’s one thing to have a great idea for a business, but it becomes much more real when you put it on paper. A business plan is essentially the story of your business: the name of your business, what your business does, how you came up with the idea for your business, what markets you serve, what differentiates your business from the competition, where your business is now, and where you see it down the road. Not only should your business plan serve as a plan to a successful business venture, but if you’re going to seek financing for your business, you’ll probably be asked for a business plan. There’s generally no set form for use in establishing a business plan, but most plans cover these essential elements:
• An executive summary, which briefly explains your company as a whole and touches on your business’s profile and goals.
• An in-depth explanation of the history and development of your company.
• A summary of the items and/or services you provide.
• A customer description, market analysis, and competitor analysis.
• A description of your business’s legal structure (e.g., corporation, partnership, sole proprietorship) and management organization.
• An explanation of your marketing plan and sales strategy.
• A capitalization plan including projected revenues, cash flow projections, pro forma financials, and an explanation of how you’ll use funds.
Selecting a business form
One of the first decisions you’ll need to make is what form of legal entity your business will take. If you’re starting a business from square one (as opposed to buying an established business), your options are many. The type of entity you select is important because it can determine the types of permits you’ll need, where and how your business should be registered, the extent of protection from personal liability each kind of entity affords, and the amount and form of taxes that may have to be paid. While it’s a great idea to consult a financial or legal professional before selecting the type of entity for your business, here’s a brief description of the more common forms of business structures.
Sole proprietorship: A sole proprietorship is the most straightforward way to structure your business entity. As a sole proprietor, your business is simply an extension of you. Sole proprietors are liable for all business debts and other obligations the business might incur. This means your personal assets could be subject to the claims of your business’s creditors.
Corporations: There are several different types of corporations. Generally, two advantages of corporations are that they provide a shield from individual liability and are the easiest type of entity to use to raise capital. Some common types of corporations are S corporations and limited liability corporations or companies. A C corporation is taxed as a separate entity, whereas S corporations and most limited liability corporations pass income, gains, deductions, and losses of your business through to the shareholders.
Your business plan is in place. Now you have to figure out where you’ll get the funds to set your dream in motion– and sustain it. The first step in determining your financing needs is to develop a line-item budget, projected over a period of months and/or years.
Next, you’ll need to figure out how to finance your business. The two general categories of financing available for businesses are debt and equity. Debt requires repayment of a loan. Equity involves raising capital by selling parts of the business to investors.
One place to search for capital may be your own assets. You may have the ability to raise money for your business from your savings or borrow against a retirement plan, life insurance policy, credit card, or the equity in your home.
Another common source of funds for new businesses is what’s called “friends and family.” However, such funding is most likely to be successful if it’s structured in a businesslike way, with clear regards to repayment or ownership participation.
You can apply to banks or credit unions for loans. The Small Business Administration has a website devoted to women-owned businesses at www.sba.gov/content/women-owned-businesses. There you can find resources to help you start and finance your business. Also, your local chamber of commerce may have the ability to refer you to state and local agencies that provide financial assistance to new businesses located within your geographic area.
There are plenty of other things to consider, including taxes, licenses, fees, and permits. You’ll need to think about where to locate your business and how you’ll market it. Will you have employees? Will you add a retirement plan? If so, you’ll have regulatory requirements and tax obligations, as well as possible workers’ compensation to consider. But you don’t have to go it alone. There are experts available to serve as mentors or counselors. Check the Women’s Business Resources section of the Small Business Administration website at www.sba.gov for information on locating a mentor.
* Source: “Women’s History Month: A Bright Future For Women-Owned Businesses,” Small Business Administration, March 11, 2013.
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