Q: I have worked for a fairly large company for many years but have always wanted to open a small business in the same field. Several of my friends own small businesses, while others do not. Naturally, I’ve received all kinds of advice ranging from “go for it,” to “why give up the security of your current job?”
Many small businesses in my area seem to come and go, but others have been open for years. What should I consider before opening my company?
A: Owning a small business is demanding and time-consuming, but it can be very rewarding. At first glance, the horror stories are sobering: Dun & Bradstreet reported earlier this year that businesses with fewer than 20 employees have only a 37 percent chance of surviving four years and just 9 percent will be around 10 years.
As you might expect, restaurants are especially vulnerable; only 20 percent survive two years. Think of the long-term local restaurants and other businesses in your area—hardware stores, CPAs, gift shops, manufacturers, etc.—and consider them survivors. Now imagine how many small companies must have failed to create such gloomy statistics!
That said, you can enhance your chances of creating a successful small business by carefully writing a business plan. Ask for input from professionals in the same field, and set realistic goals. Then, be ready to adjust the plan. Something unexpected always happens.
The websites of the U.S. Small Business Administration and other sources contain helpful guides for starting a small business. The SBA’s site begins with writing a business plan and proceeds as follows:
Step 2: Get advice. Take advantage of free training and counseling services, from preparing a business plan and securing financing, to expanding or relocating a business.
Step 3: Choose a business location. Have other similar businesses survived in this area? Or, even better, do you offer a unique product or service for the location you prefer? Get advice on how to select a customer-friendly location and comply with zoning laws.
Step 4: Finance your business. How much can you invest? Consult a business lender, find government-backed loans, venture capital or private investors to help you get started.
Step 5: Determine the legal structure of your business; Decide which form of ownership is best for you: sole proprietorship, partnership, limited liability company (LLC), corporation, or S corporation.
Step 6: Register a business name (“Doing business as”) with state government.
Step 7: Get a tax identification number from the IRS.
Step 8: Register for state and local taxes. Get a state tax identification number from the Indiana Department of Revenue.
Step 9: Obtain business licenses and permits. Get a list of federal, state and local licenses and permits required for your business.
Step 10: Understand employer responsibilities. Learn the legal steps you need to take to hire employees. Be sure to get the necessary insurance including workers’ compensation and liability.
Before you take any of these important steps, ask yourself several basic questions such as: “Why am I starting a business?,” “What kind of business do I want?,” “Who are my ideal customers?,” and “Am I prepared to spend the time and money to start my business?”
And be sure to think about your competition, resources and your ability to handle emergencies.
Now that we’ve explained some of the risks and steps to take, here is a final thought: Owning a successful business can be very satisfying. You are creating jobs, giving something of value to your community and customers and, hopefully, generating resources for you and your family.
Wojtowicz is presidentof Cambridge Capital Management Corp.