A recession may seem like a bad time to launch your own company, but many people are considering this option. Even a troubled economy can create new opportunities, so this may be the right time for your start-up. If you have entrepreneurial ambitions, here are some tips from the Oregon Society of CPAs on how to get started in uncertain times.
Offer the indispensable
When times are tough, people search for ways to cut back on unnecessary expenses. That means that your new business should offer something that consumers or businesses consider a necessary expense, some indispensable item or service that they can't do without. Different people will have different ideas about what is "indispensable," so before you take the plunge, take some time to read the business news and get a sense of the strongest industries and their greatest needs. This is a good time to be supplying goods to the healthcare industry, for example, which is indispensable in any economy, but not such a great time to be selling goods or services to the struggling auto industry.
Have a winning plan
A comprehensive business plan should be the foundation of any new venture. Your business plan can help organize your thinking about your new company. It is also an essential tool when you seek investors or lenders, because they will want to understand how the business will work. The key elements of a good business plan include a description of the company, information on the people in charge and how their experience will help the venture succeed, details about the product or service you plan to sell and what makes it unique, and an analysis of the market for your product, including a discussion of the competition. Financial statements are another crucial element. If the company has a track record, then you would include a balance sheet and cash flow and income statements in your business plan. If you are just starting up, lenders and potential investors will want to see prospective financial statements that offer a realistic picture of what you believe your company will do in the near future. The U.S. Small Business Administration offers more information on putting together a business plan on its Web site at www.sba.gov.
Estimate your cash needs
When you create your business plan, it will help you answer many critical questions, including how much money you will need to get your business off the ground. A realistic answer to this question is a key starting point for any business. Remember to consider two types of expenses: Start-up costs will include one-time outlays such as the price of securing a location for your business and the costs of basic equipment. Your ongoing expenses will include recurring costs such as supplies, rent or mortgage and salaries.
Once you know how much money you will need to start and run your business, the next question, of course, is: Where will you get the money? Some people use savings or a severance package to finance a start-up. Others rely on their credit cards, but remember that this is a very expensive financing method, with interest rates that are much higher than other options. A bank loan or investment from outsiders are good choices, but to get them you will need a business plan that can convince lenders or investors that the company you are launching will be profitable.
Consult your CPA
Whether you want help in analyzing a market or creating a business plan, remember that your local CPA can help. Turn to him or her for advice on all your business needs.
Dollars & $ense is a regular column on personal finance by Oregon Society of CPAs click here