Published by the Metropolitan Milwaukee Association of Commerce
With support from:
Why start a new business?
Starting your own business is a challenging proposition.
Individuals that embark on the entrepreneurial path play a pivotal role in the Milwaukee region’s business community. They embody the spirit of innovation and progress, elevating the quality of life by fulfilling the ever-evolving needs of consumers while generating vital employment opportunities.
It's worth noting that small businesses, in particular, hold remarkable significance, as they account for over 65% of all new jobs created in the United States. Beyond their economic impact, small business owners serve as beacons of community leadership, fearlessly addressing and tackling some of the most pressing challenges our society faces. Their unwavering dedication inspires positive change and fosters a stronger, more interconnected world for us all.
More than 1.25 million businesses are started in the U.S. each year, yet almost 80% fail within five years.
Your commitment to following the advice outlined below will significantly increase your chances of success by equipping you with valuable knowledge and insights into your prospective new business. Remember, with each step you take, you're inching closer to achieving your entrepreneurial dreams.
Will you be successful?
Owners of thriving firms possess a remarkable array of personal qualities that serve as the driving force behind their success. These very qualities hold immense potential to enrich your own business venture. It's important to recognize that the downfall of numerous businesses often stems from ineffective management. However, by taking proactive steps to ensure the soundness of your investment, you can unlock your true potential as a capable entrepreneur.
The attributes listed below are often found in owners of thriving businesses:
What do you need to succeed besides determination?
A business is more than getting your idea to market.
Components for success
To be successful, your business should have the following components:
Why do businesses fail?
Good ideas don't fail, but bad businesses do. It is important that you understand what can undermine your company, as well as what can make it a success.
common causes of business failure:
Is your business idea a sound one?
Before you can obtain financing for your business, you must be able to clearly define it. A business is more than an idea. It is an organized plan that transforms an idea into a profit-making venture. To target your resources wisely, you must answer the following questions:
The definition of your market is critical.
You must know who will buy your product, why they should buy it, and how they will buy it. More important, you must know if enough people want to buy your product to make your business viable.
If enough people don't want your product, you will not succeed. It's that simple. The time to find out whether people want your product is before you go into business.
Definition of your market is critical
You must know who will buy your product, why they should buy it, and how they will buy it. More important, you must know if enough people want to buy your product to make your business viable. If enough people don't want your product, you will not succeed. It's that simple. The time to find out whether people want your product is before you go into business.
Have you done your research?
Many potential entrepreneurs don't research their markets before starting their businesses, believing market research to be too expensive or time-consuming. In reality, the time and energy spent thoroughly researching your market before you start is negligible compared to the time and money wasted on a failed business. You can do market research two ways:
The expense of professional research is worthwhile in most cases. If you don't know your market, you won't be able to obtain the capital to successfully start your business.
If you wish to start some preliminary research on your own, you will need to determine:
the trend in your industry
Is demand for your product increasing or decreasing? Periodicals, books, and government publications are good sources of trend information. Sources to consider include Standard and Poor's Industry Surveys, marketing journals, trade magazines and general business magazines.
your business's geographic market area
Analyze your company's location in relation to customers, competitors, suppliers, and transportation systems. Draw your market area on a map.
your target markets
What particular group of people (age, gender, income, education, geographical location, lifestyle, occupation, race) purchases your products or services? This is critical. Your business can't afford to waste resources on people not likely to be customers.
Collect information about the market area and target markets.
How many people in the area match your target market? How much is spent on your product in the area of your target market? Who are your competitors for your target market?
Project the revenue + expenses
Essentially, this requires estimating what share of your target market will buy from you, versus your competitors. It also requires determining how much each of your customers is likely to spend. You also will need to determine the fixed and variable costs of running your business.
Obtaining estimates from industry experts, conducting surveys and test marketing are ways to estimate sales revenue. Also, you can analyze how many people are necessary to support businesses like yours in other communities.
Projecting revenue is a critical step in deciding whether to start your business. If your sales revenue doesn't exceed your expenses, failure is inevitable. Make sure your sales estimates are reliable. If you have any questions, use a consultant.
How can you get investment capital?
If you need money to start your business, you can think of investors or lenders as your first customers. Just as you must convince customers that your product will work, you must first convince the investor or lender that your business will work.
Many people believe that investors or lenders are too selective in providing capital. But if lenders make too many bad decisions, they jeopardize the savings of their clients. Therefore, getting money from an investor or lender requires a thoughtful and complete presentation. To succeed, you must be extremely well-prepared and willing and able to provide a great deal of information.
Your personal investment is probably the most important consideration.
In addition to sweat equity - your hard work and dedication to the success of your business - investors or lenders expect you to provide personal assets as either direct investments or collateral. They look at this as a statement of your personal commitment. How much are you willing to lose personally if the business fails? Lenders want to make sure that your money is also at risk when the going gets tough.
The first place to look for equity is your own savings and assets. If you still need more money before approaching an outside lender or investor, relatives and friends are another often-used source. If you are borrowing from\ relatives and friends, you must explain how you will repay them.
If you intend to borrow money, you must decide what you can provide for collateral.
What are you willing to lose to the lender if your business fails? Homes, land, your business's assets, and your personal possessions are common alternatives. Estimate the value of your collateral and attach any appraisals currently available. If you are seeking investors, you must decide how much of your firm's future profits you are willing to trade for their money.
Investors/lenders require a description of your business.
What are you selling, to whom, and at what price? Also, how and where are you selling it? This is typically done through a business plan, in which you describe your business entity (proprietorship, partnership or corporation) and how you will operate it.
A personal resume of each principal must be included to verify management ability. You will need to explain what experience and management abilities you possess to make the business a success. If you lack skill or experience in key functional areas (technical skills, marketing, finance, accounting, personnel, strategic planning), explain how you will develop or hire that competence.
You must project your sales, expenses, profit, and cash flows for at least three years into the future. For existing businesses, also submit financial statements for the past three years. This includes balance sheets, income statements and an interim financial statement for the period since the last fiscal year ended.
The lender will need a breakdown of the use of the loans.
Why do you need a loan? Will it be used for buying equipment? Buying inventory? Buying land? Constructing, buying, or remodeling a building? Operating capital? Provide the lender with detailed written estimates from experts familiar with the assets to be purchased.
You must outline the assets and liabilities of each owner, partner or stockholder owning 20% or more of the business in a personal financial statement. It is very likely that each person will be required to personally guarantee the repayment of any loan made to the business.
The above represents just a fraction of the information a lending institution needs to evaluate your loan application. This information is often requested on the application you must complete. However, to secure financing, you must do more than fill out applications, you must present a well-written, well-conceived business plan.
What part does your business plan play?
The business plan is often called the blueprint for success. Without a good business plan, you will find it nearly impossible to obtain capital. The business plan starkly exposes your business knowledge (or lack of it) to lenders or investors. Preparing a business plan forces you to think through your ideas and helps you communicate them clearly. Not only does this help you obtain financing, but it is also vital for successfully establishing your goals and managing your business and employees.
Much of the information requested in other portions of this booklet is necessary for completing the business plan. The business plan ties together this and much more information into a document explaining most things an investor or lender would want to know about your business.
Preparing a business plan isn't easy. It takes time and money to collect the necessary information, to analyze that information, and to properly communicate your findings. This cannot be done overnight. Successful entrepreneurs usually spend six to 10 months researching and preparing their ventures. 90% of them utilize professional advisers, such as lawyers or accountants, while almost 70% attend business seminars and regularly read business material.
An outline of a good business plan
Work through it to see how many questions you can fully answer. If you still think your business has what it takes to succeed and obtain capital, then you should consider attending a business plan seminar or seeking professional guidance to improve the odds of preparing a successful plan.
Once you have worked through your business plan and have a good product, you should work on your personal presentation. Remember, your ability to effectively manage is being judged, as is your business plan itself. Preparing key visual aids, developing responses for likely questions and repeated practice are good strategies.