Business Startup Strategy

I strongly suggest that would-be entrepreneurs do a business plan. As a result of completing the plan you will be much better prepared and know whether or not your business idea is feasible. Try the following article for a short-cut. However, I caution you on following a short-cut unless you have substantial experience or knowledge about your area. Proceed with caution without a business plan!

How is your business unique, and why will your goods or services appeal to customers? What are the primary differences between your company and your competitors? What are the driving factors to choose your business over another?

In other words, what is the underlying reason a customer would do business with your company?

1) Define Your Business and Vision

Defining your vision is important. It will become the driving force of your business. Here are questions that will help you clarify your vision:

• Who is the customer?
• What business are you in?
• What do you sell (product/service)?
• What is your plan for growth?
• What is your primary competitive advantage?

2) Write Down Your Goals

Read more: http://articles.bplans.com/starting-a-business/business-start-up-strategy/73#ixzz0y9yTEjbm

 

Create a list of goals with a brief description of action items. If your business is a start up, you will want to put more effort into your short-term goals. Often a new business concept must go through a period of research and development before the outcome can be accurately predicted for longer time frames.

Create two sets of goals:

1. Short term: range from six to 12 months.
2. Long term: can be two to five years.

Explain, as specifically as possible, what you want to achieve. Start with your personal goals. Then list your business goals. Answer these questions:

• As the owner of this business, what do you want to achieve?
• How large or small do you want this business to be?
• Do you want to include family in your business?
• Staff: do you desire to provide employment, or perhaps, you have a strong opinion on not wanting to manage people.
• Is there some cause that you want the business to address?
• Describe the quality, quantity and/or service and customer satisfaction levels.
• How would you describe your primary competitive advantage?
• How do you see the business making a difference in the lives of your customers?

3) Understand Your Customer

It is not realistic to expect you can meet the needs of everyone, no business can. Choose your target market carefully. Overlook this area, and I guarantee you will be disappointed with the performance of your business. Get this right and you will be more than pleased with the results.

• Needs: what unmet needs do your prospective customers have? How does your business meet those needs? It is usually something the customer does not have or a need that is not currently being met. Identify those unmet needs.
• Wants: think of this as your customer’s desire or wish. It can also be a deficiency.
• Problems: remember people buy things to solve a specific problem. What problems does your product or service solve?
• Perceptions: what are the negative and positive perceptions that customers have about you, your profession and its products or services? Identify both the negative and positive consequences. You will be able to use what you learn when you start marketing and promoting your business.

4) Learn From Your Competition

You can learn a lot about your business and customers by looking at how your competitors do business. Here are some questions to help you learn from your competition and focus on your customer:

• What do you know about your target market?
• What competitors do you have?
• How are competitors approaching the market?
• What are the competitor’s weaknesses and strengths?
• How can you improve upon the competition’s approach?
• What are the lifestyles, demographics and psychographics of your ideal customer?

5) Financial Matters

How will you make money? What is your break-even point? How much profit potential does your business have? Take the time to invest in preparing financial projections.

These projections should take into account the collection period for your accounts receivables (outstanding customer accounts) as well as the payment terms for your suppliers. For example, you may pay your bills in 30 days, but have to wait 45-60 days to get paid from your customers.

A cash flow projection will show you how much working capital you will need during those “gaps” in your cash position.

I recommend thinking about these six key areas:

1. Start up Investment
2. Assumptions
3. Running Monthly Overhead
4. Streamlined Sales Forecast
5. Cumulative Cash
6. Break-even

6) Identify Your Marketing Strategy

There are four steps to creating a marketing strategy for your business:

1. Identify All Target Markets: define WHO is your ideal customer or target market. Most companies experience 80% of their business from 20% of their customers. It makes sense then to direct your time and energy toward those customers who are most important.
2. Qualify the Best Target Markets: the purpose of this step is to further qualify and determine which customer profile meets the best odds of success. The strategy is to position your business at the same level as the majority of the buyers you are targeting. It is critical to figure out who your best customers are and how to best position your company in the marketplace.
3. Identify Tools, Strategies and Methods: a market you cannot access is a market you cannot serve. Marketing is the process of finding, communicating and educating your primary market about your products and services. Choose a combination of tools and strategies, that when combined, increase your odds of success.
4. Test Marketing Strategy and Tools: the assumptions we do not verify are typically the ones that have the potential to create business problems. Take the time to test all business assumptions, especially when you are making major expenditures.

Read more: http://articles.bplans.com/starting-a-business/business-start-up-strategy/73#ixzz0y9yXMUiY

How to Say "No" to an Economic Frankenfuture

Dear Big Cheeses Who Run the World,

We regret to inform that you’re fired. We’re really, truly sorry about this, but we’re going to have to let you go. It’s time for you to pursue other opportunities.

In case you haven’t noticed (and who can blame you? It’s pretty hard to see it from private jets, mega-yachts, 158th floor boardrooms, and members-only backrooms) times are pretty tough lately, and we’ve got to cut back somewhere. In fact, that we’re beginning to suspect that maybe, just maybe the entire contract between us, you, and tomorrow — the Washington Consensus, yesterday’s blueprint for building economies, communities, and societies — is fatally broken.

Yes, though it did fuel a dismal sort of prosperity, we’d like to aim slightly higher than McGrowth. Because what that seems to have led to, at the end of the day, is a level-five epidemic of austerity. Your solution? Well, it’s all a little too Dr Frankenstein for us, frankly — undead companies, banks, funds, and boards, patched and stitched piecemeal back together, shocked back into life via the electric jolt of yet another bailout, stimulus, or special exemption so they can stagger on into a desolate tomorrow.

Thanks — really — but no thanks. We’d like to pass on your very kind, rather creepy plan for a Frankenfuture. It’s time, instead, for us to take a quantum leap into the 21st century; to, once again, with steadfast determination, unyielding courage, and just a little bit of trembling trepidation, leave the past behind — and furiously pioneer a better tomorrow.

Please don’t worry about us, though — because we’re not worried about you. Gambling away other peoples’ money, glad-handing each other, double-crossing Planet Earth, and driving companies and entire economies into the red — these are highly employable skills, and we’re sure you’ll land on your feet. We’ll be happy to provide a reference spelling out your expertise at being zombie overlords, should you ever need one.

Just in case, though, you’re in need of some totally utopian, rather idealistic, hopelessly naive, laughably unrealistic, stupidly hopeful, colossally constructive, thoroughly impertinent reading material, here’s a little crib sheet we’re leaving behind for you. It’s a brief, crude stab at a new set of design principles that might, just might, be able to spark 21st century economies, communities, and societies, and ignite a more authentic, enduring prosperity.

Call it, if you like, the Generation M* Consensus — the growing consensus of a global movement dedicated to toppling the old order, by doing meaningful stuff that matters the most.
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The Empty Vessel Rule. Government, Arthur Okun famously argued, is a leaky bucket — one which leaks money at every turn. Yet, though the government may be often a leaky bucket, the corporation is just as often an empty vessel: bereft of any purpose higher than profit. What the private sector offers in terms of efficiency, it subtracts in terms of virtue. So what we really need to do today isn’t merely to privatize what used to be public, or the reverse, nationalization. We need to meld the efficiency of the private sector with the virtues of the public sector — to pioneer the legal, financial, and contractual basis for new corporate forms, like forporations, that balance obligations to shareholders and the many kinds of stakeholders; that exist “for” a higher purpose than mere near-term profit.

Shadow Tax Cuts. Low taxes are the next item on the Washington Consensus’s agenda: nice, but not nearly good enough. Sure, sky-high taxes will kill prosperity dead. So what about the hidden taxes we all pay every second of every day? Consider. The fumes smogging up our skies are a tax. The junkfood lining the bleak exurban shelves is a tax. Most big-box stores are taxes sucking the life, heart, and soul out of town. Wall Street’s “innovations” turned out to be a tax. The hidden charges and unfair fees that constitute most “business models” are the epitome of a tax. Where the Washington Consensus ignores all these very real taxes just a little too conveniently, the M Consensus suggests it’s time to see them, face them, and eliminate them: steep enough shadow taxes will render all growth meaningless and illusory, because value has simply been extracted — not actually created.

The Lessig Principle. How? Here’s one way to counterbalance shadow taxes. Property rights, the next bullet point in the Washington Consensus’s agenda, are essential to growth — and so they’ve got to be enshrined, embraced, and extended. And have they ever been. The original term of copyright was, for example 14 years; today, it’s nearly ten times that: up to 120 years. Given that growth rate, by 2100, the copyright on this blog post will last for approximately 47 billion years. Yet, as Mike Masnick tirelessly points out , building on the work of scholars like Larry Lessig, draconian intellectual property rights regimes stifle innovation, entrepreneurship, and disruption, at the expense of protecting tired, lazy incumbents (here’s an eloquent explanation on why from Lewis Hyde). So where the Washington Consensus argues for a heavy, rigid approach to property rights, the M Consensus pushes for feather-light rights, knowing that the scarcer special privilege is, the more real value everyone’s likely to enjoy.

The Porter Rule. While IP rights, are of course, a form of regulation, the next item on the Washington Consensus’s agenda is deregulation in almost all other respects. A giant oil spill, an even more gigantic financial crisis, and an even more gigantic lost decade all evoke the dangers of a dogmatic devotion to deregulation. The M Consensus, instead, subscribes to Michael Porter’s path-breaking Porter Hypothesis: crudely put, that stricter regulation isn’t what stifles competitiveness — it can be exactly what induces it, by encouraging disruptive innovations to spark and catch fire.

The People Principle. Perhaps the biggest incentive we can give corporations to start getting serious about real innovation again, then, is what might be called humanization. The next item of the Washington Consensus’s moldy agenda is legally protecting the corporation. It’s been taken to an absurd extreme, with the doctrine that corporations must enjoy legal personhood. But (Earth to beancounters) corporations aren’t people — only people are people. The former face few of the obligations citizens do, can’t face the same kinds of punishments, are legally bound to maximize profit in ways that citizens aren’t, and tend to have thousands of times more cash, time, and power, which means they can afford to de facto buy rights almost no person on earth has (like hiring batteries of lawyers to fight cases for decades). Corporations, like hammers, are just tools. And for the same reason we don’t anthropomorphize hammers, nor should we empower corporations with the same rights and powers as people. Where the Washington Consensus humanizes corporations, and dehumanizes people, the M consensus suggests unhumanizing corporations, and rehumanizing people.

The Uninterest Rate. So where the last item in the Washington Consensus’s agenda is interest rates, set by markets, to knock governments, people, and communities into shape, the final item in the M Consensus’s agenda is what I call an uninterest rate: the rate at which income isn’t transformed into outcomes. It’s outcomes that count. Though we got a little bit richer, did we actually realize tangible, enduring benefits that mattered? Or did we just get more insecure, obese, unhappy, and disconnected? If the uninterest rate is high, it means income isn’t translating into outcomes; because our economy’s engines and engineers — corporations, CEOs, investors — are uninterested in making stuff that actually makes us better off; they’re just interested in making a quick buck. The higher the uninterest rate, the more corporations are likely to be knocked into shape — by fed-up people, communities, society, and investors alike. If it’s low, incomes equal better outcomes, and the mere paper wealth we may have earned actually matters in human terms.

The plight of the global economy looks a lot less like a headsplitting hangover and a lot more like what tends to happen to a two-pack-a-day smoker after twenty years. So what I’ve just described is really this: the agenda for the kind of innovation that’s scarce, rare, and valuable today: institutional innovation. That’s the kind of innovation we need to restore economic health. And every day, I see more and more organizations signing off on it, in ways big and small — from Starbucks, to Pepsi, to Timberland, to Wal-Mart, to Nike, to Google, to Tata.

There endeth (for now, anyways) the M Consensus. Truth be told, of course, it’s not really a consensus, at least not yet. It’s just a highly flawed, surely imperfect, quickly written blog post with just a few ideas — no, not a comprehensive set of answers — for what tomorrow’s great consensus could be. So fire away in the comments with your own suggestions, questions, examples, and additions.

*Yes, I’m fully aware I don’t speak for everyone under the age of 25, 35, 45, or 95. Nor am I trying to. There are plenty of exceptions that prove the rule that Millennials put meaning, fulfillment, and purpose first. That said, the “M” in Gen M doesn’t stand for Millennials. It stands for “a movement to do meaningful stuff that matters the most”. It’s not about your age — it’s about your values, your vision, and your calling.

A Flexible Approach to Funding Entrepreneurs

I spent eight years at eBay learning how businesses can create opportunities for people and benefit society. eBay supports millions of Internet entrepreneurs and $60 billion worth of commerce. But in my time as president of eBay International, I also realized that the firm’s social efforts wouldn’t necessarily reach poor people in less-connected parts of the world, because the expected financial returns in these geographies didn’t warrant expansion on our part.

This was much on my mind when I joined Omidyar Network three years ago to oversee its philanthropic strategy. The bottom line at ON is societal value. We believe in “flexible capital” — that is, we invest financial and human resources in both for-profit and nonprofit ventures. It’s not an either-or decision for us; we believe using both grants and for-profit investments can be powerfully complementary.

Since 2004, Omidyar Network has invested more than $350 million in more than 150 organizations. The range of sectors includes microfinance, consumer Internet and mobile applications, global entrepreneurship, government transparency, and property rights. Some 57% of those dollars have funded grants and 43% for-profit investments.

Philanthropy through grants can benefit society in many ways. Grants can help nonprofits provide public goods — for instance, the technology developed by the Rockefeller Foundation in support of the Green Revolution. They can help subsidize goods and services that produce positive societal outcomes — for instance, vaccines developed as a result of Gates Foundation grants. And they can spur investments in high-risk ventures — for instance, initial development of the microfinance industry.

Meanwhile, investments in for-profit ventures benefit society by leveraging the power of markets. When the primary motive is to generate profits, businesses will strive to deliver value in excess of costs and scale up. And, as Pierre Omidyar experienced first-hand, successful for-profit ventures can create substantial customer value, jobs, and economic activity.

But the combination of both can be quite powerful. Take microfinance’s phenomenal growth. In the 1980s and 1990s, most microfinance institutions were grant-funded NGOs. As microfinance’s impact and commercial viability became apparent, business investors, many with strong social motivations, invested heavily in commercial MFIs, helping them grow rapidly. The percentage of the world’s top 50 MFIs that were for-profit banks increased from 22% to 62% between 1998 and 2008. Grants sparked and nurtured microfinance while for-profit capital helped it scale.

Additionally, the Internet provides numerous examples of the ways for-profit and not-for-profit investments can complement one another. Nonprofit Wikipedia, for example, engages hundreds of millions of individuals in creating educational content, sharing information, and learning online. Meanwhile, the for-profit website ViiKii is a self-described Wikipedia-meets-Hulu platform where volunteers translate video content into a multitude of languages for subsequent viewing on ViiKii or partner sites. The site tears down language and cultural barriers while providing valuable content.

Increasingly, philanthropists and foundations are recognizing the benefits of the flexible approach. However, less than 1% of the capital U.S. foundations disbursed in 2007 (the last year of complete data) supported for-profit ventures. Moreover, only 4% of that 1% was invested in equity — precisely the kind of risk capital than can nurture businesses aimed at creating social good. With hundreds of billions of dollars flowing into philanthropy over the next few decades, the big urgent question will be: How can we best deploy these funds?

The private sector is being increasingly scrutinized for its ability to deliver societal value as well as profits, while the public sector, in this period of increased austerity, will be called upon to find creative ways to deliver more value with less. The flexible-capital approach holds great promise for both, in terms of improving the human condition.

We’d like to hear from the HBR community. How can philanthropists support innovative entrepreneurs — with both financial and human capital — to best help them succeed?

Matt Bannick is managing partner at Omidyar Network. He leads all aspects of the philanthropic investment firm’s strategy and operations.

If You’re the Boss, Start Killing More Good Ideas

Recently, I posted a list of 12 Things Good Bosses Believe. Now I’m following up by delving into each one of them. This post is about the ninth belief: “Innovation is crucial to every team and organization. So my job is to encourage my people to generate and test all kinds of new ideas. But it is also my job to help them kill off all the bad ideas we generate, and most of the good ideas, too.”

An evidence-based mantra is that, to get a few good ideas, you and your colleagues need to generate a lot of bad ideas. I wrote about this notion in my last post on Forgive and Remember where we saw that, to yield a dozen or so commercially successful ideas for toys, a group at IDEO generated over 4,000 non-starters. It turns out, however, that the best managed enterprises don’t just recognize the flowers among the weeds; they mow down a lot of the flowers, too.

I first started thinking about this five years ago or so after a conversation with a Yahoo! executive participating in the Customer-Focused Innovation program that Huggy Rao and I run at Stanford. Yahoo! had just had Steve Jobs in to address their top 100 or so bosses. Jobs advised them that killing bad ideas isn’t that hard — lots of companies, even bad companies, are good at that. He insisted that what is really hard — and a hallmark of great companies — is killing good ideas. For any single good idea to succeed, it needs a lot of resources, time, and attention, and so only a few ideas can be developed fully. The challenge is to be tough enough to do the pruning so that the survivors have a chance of being implemented properly and reaching their full potential.

Since then it’s also become clear to me that good product and experience design depends on tossing out most good ideas. If too many of them are thrown in, then the result is a terrible and confusing Frankenstein of an offering. (This seems to be many people’s objection to Microsoft Word: It does everything, so therefore is annoying and confusing to use for many single things.)

The implication, then, is that the “innovation funnel” where a lot of ideas are whittled down to a precious few — should contain two major filtering stages: one where you get rid of the bad ideas and then another where you toss the good ideas that aren’t quite good enough to justify a thinner spread of resources, a greater diffusion of focus, and possibly a more complex customer experience.

If you take this argument to its logical conclusion, it means that a great boss — and let’s define that for the moment as a boss whose team delivers innovation — might track these two metrics:

1. How many good ideas are killed? If this number isn’t high enough, that is a bad sign. It means either that not enough ideas are being generated, or that important hard choices aren’t being made.
2. How many people are complaining — even leaving — because of good ideas being killed? This really is what makes the pruning so hard. It’s tough on the people who came up with ideas and are emotionally invested in them. Being the direct cause of their complaining, and even departure, is awful — and certainly doesn’t make you feel like a great boss. But if no one is complaining, that’s a worse sign. This kind of frustration is an unfortunate byproduct of an effective innovation process, and if your people don’t have enough pride and confidence to get upset when their innovative ideas are killed, then something is wrong with them — or your culture.

These are weird metrics, but they make sense given Jobs’ argument. His argument also resonates with our experience teaching in the Stanford d.school and my experience working with creative teams in industry: The groups that often do the worst work have too many pet ideas and can’t bring themselves to kill enough of them, so they don’t do a decent job on any of them.

Groups that can’t kill enough ideas often suffer from bad group dynamics, either because multiple members won’t allow the group to kill their pet ideas, or because the group avoids difficult conversations and decisions. As we advise the creative teams we coach at Stanford and elsewhere, we always stress that this “Sophie’s Choice” point in the process will come, and will have to be well managed. The team will have to be prepared to kill ideas it has nurtured and come to love.

To put this in a broader context, although the words “creativity” and “fun” are often used together, there is a lot about doing creative work that is no fun, Failure, confusion, and conflict are par for the course, and, even when you are doing things right, it involves killing good ideas and making people angry. That’s why, as I compiled my set of Good Boss, Bad Boss distinctions, this one made the cut. Enterprises depend on bosses to manage innovation as well as implementation. The very best bosses teach and inspire their people to accept defeat gracefully and move forward to implement the selected ideas, even if none of their pet ideas made the cut.

Robert Sutton is Professor of Management Science and Engineering at Stanford University. He studies and writes about management, innovation, and the nitty-gritty of organizational life. His new book is Good Boss, Bad Boss, from Business Plus.

Quick Tip #25 – Quick Discounting in Etsy

No weekly inspiration this week because I just came across a wonderful Greasemonkey script for Etsy. Those of you who already use the EtsyHacks know about Greasemonkey, it is a wonderful add-on for the Firefox browser that lets to install scripts that modify how you can use websites (I also use some for gmail, squidoo, and a few other sites).

Today’s useful script is by Etsy seller krtwood and lets you bulk discount all items in your shop by a percentage and adds a quick edit link under the price in your currently listed item list.

Download Quick Price Edit Here

Notes: 
1: % is set as that % of original price 50% of $10=$5, 80% of $10=$8. So 10% of $10 would be $1 not $9.
2: To reverse your discount do 10000/% used. So 10000/80=125%

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Software and Resources for Creating Your Business Plan 1

Create a better business plan with the following helpful resources and software applications.

Resources

U.S. SBA
The U.S. Small Business Administration provides business plan basics.

Business Plan Tutorial
This multimedia online tutorial from CIT Small Business Lending Corporation explains what should be included in your business plan.

Sample Business Plans
Read some award-winning business plans. You will likely pick up on more than one good idea you can incorporate in your plan.

Software

Planware
Planware offers business planning software tools, some free and some for trial use.

Business Plan Pro
PaloAlto Software offers Business Plan Pro and other related applications that can kick-start the creation of your own business plan.

PlanWrite
Business Resource Software sells PlanWrite software to create business and marketing plans.

BizPlanBuilder
JIAN BizPlanBuilder works with Microsoft Word and Excel (required) to create your business plan. It includes sample business plans, built-in financials, and Web resources.

PlanMagic
PlanMagic offers several business plan creation applications including specialty versions for verticals such as construction, bar, restaurant, bed and breakfast, hotel, and resort.

Venture Planning System Pro
Venture Planning System Pro is an Internet-based service from Advantage Venture Systems that lets you log in and create a business plan on its subscription-based system. A 10-day free trial with restricted capabilities is available.

Business Planner Pro
Planium’s Business Planner Pro lets you create a business plan, including financials, while analyzing feasibility and risks and exploring several scenarios. It requires Excel 2003 and Microsoft Word 2003.

Business Objects
SAP sells the Business Objects line of sophisticated business strategic and financial planning software.

You’ve Finished Your Business Plan -- Now Check It Twice

You've worked hard to create a document that reflects the planning and projections that make your business great. But before you put your business plan to work -- with potential investors, lenders, and other interested parties -- there are a few more steps to strengthen this crucial document.

Use the following tips to improve your business plan.

Understand Your Tools

Spreadsheet templates can be a useful starting point in developing your own financial projection. Make sure you understand how the template works, including its financial logic. You don’t want to base your financial model on calculated assumptions that aren’t realistic for your business.

Hire an Accountant

If you want to make sure your financial projections make sense, get an accountant to look them over. The review should include both the printout included in your business plan and the software application that created it. Have your financial expert play with the software model, change a few of the figures, and recalculate the results to see if they still hang together.

Hire a Writer

We’re not all blessed with superb writing abilities. If you aren’t confident in your writing skills, consider asking a professional editor with experience in business plans to polish your words. Even professional writers know they need an editor.

Be in Charge

Some consultants offer to take on the complete responsibility for preparing your business plan. This is not the best approach; someone from your business should drive the process. You can use assistance as required but don’t outsource the whole knotty problem to a stranger. Let’s face it, no consultant, no matter how knowledgeable, has the same experience in the trenches running your business as you.

Check the Length

What’s the right length for a business plan? Enough to tell the story but no more. Business plan summaries, touching the highlights, typically run under 10 pages. Full-length business plans can run 100 or more pages. You can prepare both for distribution to different readers.

Develop a Verbal Pitch

Set down in writing the points you should include in a quick verbal outline, your business plan in a minute. Develop a succinct 60-second “elevator speech” of the rationale for your business and the investment required. You never know who you will bump into in your rounds of meetings. It’s good to have a polished pitch you can launch into when you meet a good prospective investor.

Update Regularly

A business plan is not just a document to get you through this year's budget or fund-raising. It's essential that you consider it a living document, one that is updated and reassessed regularly. Since most businesses work on an annual budget cycle, you should update and reassess your business plan annually.

Learn the Lingo Used in Business Planning

Here are some terms that are good to know the meaning of when creating your business plan.

Business Plan

This document outlines the future goals for your business. The plan should explain the details of the what, why, who, and how of the proposed business opportunity. It should include a financial projection that shows the amount of money required to carry out the plan, the probable sources of the required funds, and the likely financial results if the plan is implemented.

Break-Even Analysis

This calculation shows the amount of sales revenue required to earn zero profit. That amount of sales is also called the break-even point. A higher level of sales will lead to a profit for the business.

Payback Period

This is the amount of time it takes for an investment in the business to be repaid. It’s considered the break-even point of an investment. While the payback period can be quick to calculate, it disregards the time value of money, unlike the return on investment. A shorter payback period represents a better deal for the investor.

Return on Investment

The ROI measures the profitability of the business in relation to the investment of both equity and debt required to earn it. It’s calculated by dividing the annual income of the business by the investment. The higher the ROI the better.

Marketing Plan

This document outlines the future sales objectives for the business and the actions proposed to achieve those goals. The plan should explain the details of the how, where, and to whom a business will sell its products or services. The marketing plan may be a stand-alone document. However, the marketing plan or a summary of it is often incorporated into a business plan.

Business Model

The business model explains how the business will generate revenue and shows the expenditures required to earn that revenue. It should show how the business is capable of earning a return on the investment of the owners. In a nutshell, the business model should demonstrate the economic viability of the business. An explanation of the business model should be incorporated into a business plan.

Financial Projection

Typically the financial projection will show the likely future financial results of the business. A projection will usually cover the next five years. The first year or two will show results on a month-by-month basis, while later years show only annual estimates. At a bare minimum, the financial projection will show details of future cash flow. An integrated financial projection will also show future income and expenses and balance sheets.

Template

A template is a model document or form that includes standard section headings, text, and calculation formulae along with blank sections that must be completed. Use of a template can save time and ensure that all the required information is included in the completed document.

Forms of Business Ownership

From the Small Business Administration

One of the first decisions that you will have to make as a business owner is how the company should be structured. This decision will have long-term implications, so consult with an accountant and attorney to help you select the form of ownership that is right for you. In making a choice, you will want to take into account the following:

 

• Your vision regarding the size and nature of your business.
• The level of control you wish to have.
• The level of "structure" you are willing to deal with.
• The business's vulnerability to lawsuits.
• Tax implications of the different ownership structures.
• Expected profit (or loss) of the business.
• Whether or not you need to re-invest earnings into the business.
• Your need for access to cash out of the business for yourself.

SOLE PROPRIETORSHIPS

The vast majority of small business start out as sole proprietorships. These firms are owned by one person, usually the individual who has day-to-day responsibility for running the business. Sole proprietors own all the assets of the business and the profits generated by it. They also assume complete responsibility for any of its liabilities or debts. In the eyes of the law and the public, you are one in the same with the business.

Advantages of a Sole Proprietorship

• Easiest and least expensive form of ownership to organize.
• Sole proprietors are in complete control, and within the parameters of the law, may make decisions as they see fit.
• Sole proprietors receive all income generated by the business to keep or reinvest.
• Profits from the business flow-through directly to the owner's personal tax return.
• The business is easy to dissolve, if desired.

Disadvantages of a Sole Proprietorship

Sole proprietors have unlimited liability and are legally responsible for all debts against the business. Their business and personal assets are at risk.

• May be at a disadvantage in raising funds and are often limited to using funds from personal savings or consumer loans.
• May have a hard time attracting high-caliber employees, or those that are motivated by the opportunity to own a part of the business.
• Some employee benefits such as owner's medical insurance premiums are not directly deductible from business income (only partially deductible as an adjustment to income).

Federal Tax Forms for Sole Proprietorship (only a partial list and some may not apply)

• Form 1040: Individual Income Tax Return
• Schedule C: Profit or Loss from Business (or Schedule C-EZ)
• Schedule SE: Self-Employment Tax
• Form 1040-ES: Estimated Tax for Individuals
• Form 4562: Depreciation and Amortization
• Form 8829: Expenses for Business Use of your Home
• Employment Tax Forms

PARTNERSHIPS

In a Partnership, two or more people share ownership of a single business. Like proprietorships, the law does not distinguish between the business and its owners. The Partners should have a legal agreement that sets forth how decisions will be made, profits will be shared, disputes will be resolved, how future partners will be admitted to the partnership, how partners can be bought out, or what steps will be taken to dissolve the partnership when needed;Yes, its hard to think about a "break-up" when the business is just getting started, but many partnerships split up at crisis times and unless there is a defined process, there will be even greater problems. They also must decide up front how much time and capital each will contribute, etc.

Advantages of a Partnership

• Partnerships are relatively easy to establish; however time should be invested in developing the partnership agreement.
• With more than one owner, the ability to raise funds may be increased.
• The profits from the business flow directly through to the partners' personal tax returns.
• Prospective employees may be attracted to the business if given the incentive to become a partner.
• The business usually will benefit from partners who have complementary skills.

Disadvantages of a Partnership

• Partners are jointly and individually liable for the actions of the other partners.
• Profits must be shared with others.
• Since decisions are shared, disagreements can occur.
• Some employee benefits are not deductible from business income on tax returns.
• The partnership may have a limited life; it may end upon the withdrawal or death of a partner.

Types of Partnerships that should be considered:

General Partnership

Partners divide responsibility for management and liability, as well as the shares of profit or loss according to their internal agreement. Equal shares are assumed unless there is a written agreement that states differently.

Limited Partnership and Partnership with Limited Liability

"Limited" means that most of the partners have limited liability (to the extent of their investment) as well as limited input regarding management decisions, which generally encourages investors for short term projects, or for investing in capital assets. This form of ownership is not often used for operating retail or service businesses. Forming a limited partnership is more complex and formal than that of a general partnership.

Joint Venture

Acts like a general partnership, but is clearly for a limited period of time or a single project. If the partners in a joint venture repeat the activity, they will be recognized as an ongoing partnership and will have to file as such, and distribute accumulated partnership assets upon dissolution of the entity.

Federal Tax Forms for Partnerships (only a partial list and some may not apply)

• Form 1065: Partnership Return of Income
• Form 1065 K-1: Partner's Share of Income, Credit, Deductions
• Form 4562: Depreciation
• Form 1040: Individual Income Tax Return
• Schedule E: Supplemental Income and Loss
• Schedule SE: Self-Employment Tax
• Form 1040-ES: Estimated Tax for Individuals
• Employment Tax Forms

CORPORATIONS

A corporation, chartered by the state in which it is headquartered, is considered by law to be a unique entity, separate and apart from those who own it. A corporation can be taxed; it can be sued; it can enter into contractual agreements. The owners of a corporation are its shareholders. The shareholders elect a board of directors to oversee the major policies and decisions. The corporation has a life of its own and does not dissolve when ownership changes.

Advantages of a Corporation

• Shareholders have limited liability for the corporation's debts or judgments against the corporations.
• Generally, shareholders can only be held accountable for their investment in stock of the company. (Note however, that officers can be held personally liable for their actions, such as the failure to withhold and pay employment taxes.)
• Corporations can raise additional funds through the sale of stock.
• A corporation may deduct the cost of benefits it provides to officers and employees.
• Can elect S corporation status if certain requirements are met. This election enables company to be taxed similar to a partnership.

Disadvantages of a Corporation

• The process of incorporation requires more time and money than other forms of organization.
• Corporations are monitored by federal, state and some local agencies, and as a result may have more paperwork to comply with regulations.
• Incorporating may result in higher overall taxes. Dividends paid to shareholders are not deductible form business income, thus this income can be taxed twice.

Federal Tax Forms for Regular or "C" Corporations (only a partial list and some may not apply)

• Form 1120 or 1120-A: Corporation Income Tax Return
• Form 1120-W Estimated Tax for Corporation
• Form 8109-B Deposit Coupon 

Subchapter S Corporations

A tax election only; this election enables the shareholder to treat the earnings and profits as distributions, and have them pass thru directly to their personal tax return. The catch here is that the shareholder, if working for the company, and if there is a profit, must pay herself wages, and it must meet standards of "reasonable compensation". This can vary by geographical region as well as occupation, but the basic rule is to pay yourself what you would have to pay someone to do your job, as long as there is enough profit. If you do not do this, the IRS can reclassify all of the earnings and profit as wages, and you will be liable for all of the payroll taxes on the total amount.

Federal Tax Forms for Subchapter S Corporations (only a partial list and some may not apply)

• Form 1120S: Income Tax Return for S Corporation
• 1120S K-1: Shareholder's Share of Income, Credit, Deductions
• Form 4625 Depreciation
• Employment Tax Forms
• Form 1040: Individual Income Tax Return
• Schedule E: Supplemental Income and Loss
• Schedule SE: Self-Employment Tax
• Form 1040-ES: Estimated Tax for Individuals
• Other forms as needed for capital gains, sale of assets, alternative minimum tax, etc.

LIMITED LIABILITY COMPANY (LLC)

The LLC is a relatively new type of hybrid business structure that is now permissible in most states. It is designed to provide the limited liability features of a corporation and the tax efficiencies and operational flexibility of a partnership. Formation is more complex and formal than that of a general partnership.

The owners are members, and the duration of the LLC is usually determined when the organization papers are filed. The time limit can be continued if desired by a vote of the members at the time of expiration. LLC's must not have more than two of the four characteristics that define corporations: Limited liability to the extent of assets; continuity of life; centralization of management; and free transferability of ownership interests.

Federal Tax Forms for LLC

Taxed as partnership in most cases; corporation forms must be used if there are more than 2 of the 4 corporate characteristics, as described above.

In summary, deciding the form of ownership that best suits your business venture should be given careful consideration. Use your key advisors to assist you in the process.

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(from Small Business Success, a workshop series sponsored by the Ohio Women's Business Resource Network.)

How Much Working Capital Does a Startup Really Need?

Careful working-capital calculations to start a business are particularly important during an economic downturn. Follow these steps to make sure you have enough money to stay in business.

Learn About Your Industry

From the beginning, you need to know two things: how much a business in your industry typically spends to open its doors, and how long it will likely take the business to become profitable. To find these facts, seek out statistics for your industry. If you're opening a restaurant, for instance, call your state's restaurant association, which may have data it can share. State or federal government agencies or your local Small Business Administration office may also be good sources of statistics on business startups.

Network, Network, Network

There's only one place to get the real lowdown on business costs: from other business owners. Join local industry associations and befriend business owners of similar business types. Try to get answers to questions such as what costs took them by surprise when they first opened? What were their biggest costs? How did they keep costs down in those early months? How long did it take to break even? What were the most cost-effective ways of marketing the business? How many employees are needed, and what's the going pay rate?

Don't forget to ask about revenue as well. You need to know how much money the business will likely bring in during those early months. If local business owners in your sector view you as competition and clam up, try chatting up an owner of a business that's similar to yours but located in another town.

Determine Expenses

If business owners won't give you details about their own businesses, ask if they are willing to give you a blank financial statement, with all the numbers removed. This will at least show you all the expense categories you need to think about.

New business owners are often ignorant of the full range of expenses they’ll have, such as the cost of workers’ compensation insurance, unemployment payments, required state license fees, business taxes, and association dues. Having the blank statement will help prevent surprise costs that aren't in your working-capital budget.

Talk to Experts

Business owners provide excellent firsthand knowledge of working-capital needs, but good business consultants, accountants, and attorneys offer broad expertise you won’t find elsewhere. As your business grows, these advisors will become increasingly important; so if you can connect with a few strong advisors early on, all the better.

Consider the Recession Factor

If the economy is slow in your market, you'll likely want to plan on additional working-capital reserves beyond what experts and business owners tell you that you need. If other owners started in boom times, remember that your situation is different.

Find the Money

One thing to remember about working capital is you don't have to have it all in cash, all at once. Once you've come up with your working-capital estimate, just make sure you will have access to the cash you need as you get your business off the ground. If you can open a bank line of credit, you'll have money you can tap as you need it.

Besides banks, consider other possible sources of capital, such as family and friends, vendors, angel investors, and venture capital firms, depending on the nature and scope of your business. One increasingly popular option is peer-to-peer online lending sites such as Prosper.com and Zopa.com, where individual citizens lend money directly to business owners.

Business reporter Carol Tice contributes to several national and regional business publications.

Getting the Most Out of Your Trusted Business Advisors

It is nearly impossible for a single business owner to know everything there is to know about running a business. To help stay current, successful business owners need a group of trusted business advisors they can call on from time to time to help keep their business running efficiently and generating the most profits possible.

Most business owners consider their core business advisors to be their corporate attorney, accountant, insurance agent, and business finance advisor. Depending on the type of business and number of employees, they may also have an intellectual property attorney, a human resources and regulatory issues management company, and advisors who provide other specific assistance.

Human resources and employee regulatory compliance, for example, has more than 100 rules, regulations, and laws an employer must comply with concerning treatment of employees. These rules and regulations are constantly changing, so having advisors to handle these responsibilities allows the business owner to manage the businesses while maximizing profits and minimizing risk.

Here are a few considerations when picking your trusted advisors and deciding how to use them best:

• Corporate attorney: If your business is set up as anything other than a sole proprietorship, certain records and books must be maintained. If your company has more than a couple of shareholders, maintaining good corporate governance becomes even more important. You can keep many state-required corporate records, but having your corporate attorney review them annually is a good idea. He or she can also prepare buy/sell agreements and assist you with general contracts and minor litigation. The most important consideration is that your counsel gives you strong practical legal advice so you can make good decisions.
• Accountant: Today with QuickBooks and other computerized accounting programs, many successful businesses do not rely on their accountant for daily bookkeeping. Accountants now bring the highest value to a company when they help establish the company chart of accounts and do an annual year-end compilation of the books. From the annual compilation they produce a tax return and necessary shareholder forms that become a part of the owner’s tax return. Often businesses ask their accountants to prepare IRS 1099s and W-2 forms to be sent to contractors and employees. Many small business owners also ask their accountant to prepare their quarterly IRS 940 reports and compute the appropriate taxes. During the year business owners may call on their accountants for advice as necessary to minimize taxes and maintain their good standing with the IRS.
• Insurance agent: Many business owners don’t realize how much money a good property and casualty insurance agent can save them. This is particularly true if a company’s workers’ compensation premiums are high. The type of insurance a business must maintain varies by business but can include workers’ compensation, general liability, completed products liability, fire, and commercial auto. It doesn’t take long for the cost of various types of insurance to add up, so finding a qualified insurance agent who writes many types of business policies is valuable.
• Business finance advisor: With the availability of business credit becoming harder to obtain and the number of financing options increasing, it is often worthwhile to have a coach who can help you find the best financing options and loan structuring for your business. Occasionally your accountant can fill this role, but with finance options and costs frequently changing in the market, it is worthwhile to have a relationship with someone who can help you keep good external financing options available and affordable.

Successful business owners develop their own style for how to use their trusted advisors and over time develop a strong synergy allowing them to do what they do best, which is manage their business while maximizing profits and minimizing risk.

Sam Thacker is a partner in Austin, Texas-based Business Finance Solutions.

Ten Things to Consider When Reviewing Your Business Plan

Once you have completed your business plan, it's time to review your work. Remember, writing your business plan is a significant step in making your small business concept a reality. Therefore, you should review your plan carefully and ask others who you feel can provide sound advice to also critique your document.

Your business plan should include:

1. All key sections: Executive summary, business overview, sales and marketing, management team, competitive analysis, and financial plan.
2. A table of contents.
3. All key points explained clearly.
4. Concise language, eliminating any extraneous material, hype, or repetitive statements.
5. Substantiated facts, such as current and accurate data and verifiable claims.
6. A clearly defined target market and realistic goals to reach this audience.
7. A clear competitive analysis presented in a manner to show how you will gain a competitive edge.
8. Financial projections that are neither overestimated nor underestimated in a time frame suitable for launching the business. Be conservative with your estimates.
9. Visible contact information on a cover page and at the end of the document.
10. Content that has been thoroughly proofread and checked carefully for spelling and grammar.

Remember, a business plan is typically designed to attract investors and also to provide a blueprint for your business. It should illustrate the goals, objectives, strategies, and means of operations for your business. You should, therefore, present the information in a professional manner. Neatness and attention to detail indicate that you are serious about this business endeavor.

If the business plan is for your own purposes only, such as to guide you as an entrepreneur, review the plan as though you were reading it six months into the life of your business. Does it present a full quantifiable picture of the business at a given time? If you can see exactly where the business is at a designated time, you will be able to monitor your progress and make changes accordingly

Make Your Business Plan Customer-Centric

There's a trend in business today for companies to become more customer-centric. Companies are focusing not only on their products and services, but also on their customers. Your company's objectives should highlight the quality of your product and the support of your customers.

Customer focus goes hand-in-hand with customer loyalty. More than customer satisfaction, customer loyalty extends to all customers in your business, from those who supply to those who buy. It includes your first customer too — your employee.

Customer-centricity also plays a role in defining and guiding the customer's experience. Walt Disney was the master of controlling a customer's experience. Disney's theme parks today control what visitors see, what they smell, when those sights and smells hit them, the emotions they feel, and much more. Every tiny detail is attended to by park employees. Disney is now the yardstick against which other companies' performances are measured. There's even a term for what Disney does and others try to emulate. It is called imagineering, the engineering of our imagination and thoughts.

So, what exactly is a customer-centric company? It is one that recognizes the only way to add lasting value to the company is to value the customer. Nothing is as crucial to the success of your business as the values of your customer, since they are fundamental to your survival and success.

Customer-focused leaders Don Peppers and Martha Rogers, Ph.D. offer the following seven guiding principles of successful customer-based firms:

• Focus extensively on delivering value to customers.
• Forgo short-term results and look instead at long-term business value.
• Include senior level buy-in in your customer-based program.
• Share your customer-focused initiatives with employees, partners, and customers alike.
• Recognize that traditional measurement tools may not adequately track your customer values, such as emotions and loyalty.
• Incorporate employee (and contractor) training as part of the customer-centric movement.
• Identify internal stakeholders (owners, employees, partners, suppliers) and work to build support within this group.

As you write your business plan, consider how you may be able to work one, two, or even all seven of these habits into your daily work. Remember that your business plan is an evolving document. You can add these customer-centric initiatives incrementally to your plan and business.

This may sound a bit intimidating at this point in your business evolution. Entrepreneurs in the startup phase spend much of their waking moments focusing on their business concepts. However, it is important to focus on those individuals — the customers — who will make or break the business. Keep them in sight, if only on the periphery.

Take a moment and consider companies with whom you like to do business:

• Why do you like doing business with this company?
• Why do you return to it?
• How many other potential customers have you told about your positive experiences with this company?
• What part of this company's business operation can you emulate and use in your own business model?
• Are you loyal to this company? Why?
• As a customer, do you feel like an important part of the company's success?

There are many things to think about when planning a small business. While focusing on financing, business structure, and marketing, don't lose sight of the most important component: your customers. Without them, you have no business.

For more information on making and keeping happy customers, read Ten Suggestions to Build Customer Loyalty and Ten Rules for Great Customer Service

Startups: What Business Permits and Licenses Do You Need?

Business permits and licenses represent another set of legal regulatory requirements. These must be obtained before you are able to officially open your doors and operate your business legally. State and local permits and licenses apply equally to proprietorships, partnerships, and corporations. In some instances federal permit requirements may also apply.

The most common license is the general business license. It’s for the privilege of operating in your jurisdiction. There are also special licenses that may apply, depending on the type of business you plan to start.

Here are some questions to ask yourself to help identify these requirements:

1. Where Am I Conducting My Business? Zoning ordinances are designed to protect land use and the character of neighborhoods. They are regulated on the local, municipal level. When deciding on the physical location for your business, you’ll want to make sure that your intended business use is allowed by the local ordinance. The same holds true for any rented commercial space you plan to lease.
   Even if you contemplate working from home and your startup relies exclusively on Internet traffic, not foot traffic, you’ll still want to check with your local zoning or planning office. Many will require a permit. Some, for example, call it a Home Occupation Permit, and you’ll need to secure it before you can obtain a general business license. It’s not a complex form. Its purpose is to help the local authorities evaluate how your new venture will impact the neighborhood. Will it increase foot traffic? Car or truck traffic? How about parking problems or noise problems?
2. How Am I Conducting My Business? If, for example, you’re contemplating starting a manufacturing company, you may need to investigate federal and state discharge permit requirements if your enterprise discharges anything into the air, water, or ground. There may also be permit requirements for the proper disposal of hazardous waste.
3. Who Is Conducting My Business? Some businesses, by their very nature, require licensed professionals such as plumbers, electricians, beauticians, lawyers, accountants, and general building contractors. If an employee doesn’t have the right credentials, the employer can be held responsible.
4. What Is the Nature of My Business? Some businesses require special licenses to operate. If, for example, you’re planning to open a restaurant with a bar, you’ll need a liquor license. Your state and local government can help you identify what special licenses may apply to your business.

The foregoing is not an exhaustive list of business licenses or permits. It’s only a sampling to help you identify a big potential startup trap. Operating without a required license or permit can expose your business to fines and penalties. In some cases, those fines can be levied for each day you remain out of compliance. It adds up fast.

To find out what business licenses and permits apply to your specific business venture, contact the Secretary of State office of your state and your local municipality for information and advice. Tell them what you plan to do and they will gladly point you in the right direction, provide you with lots of useful contact information and checklists. You might also want to ask what permits or licenses need to be obtained first and what applications can be submitted simultaneously. It will save you time.

Unfortunately, there is no one-stop license and permit office because the requirements relevant to your specific business will probably rest with more than one office. As a result, securing all the necessary paperwork can be a tedious process. It will require multiple follow-up calls. Expect delays.

If you don’t have time for an administrative paper chase, or prefer the peace of mind of having a professional do it, you can always hire a lawyer with experience in these matters. Certain licensing services may also be available through business services such as LegalZoom.com, Incorporate.com, and Bizfilings.com.

Starting Up: How Much Money Do I Need?

From smSmallBiz

IN 2001, WHEN Wade Tinney co-founded Large Animal Games, a New York online game developer, he and his partner Josh Welber had a woeful understanding of start-up costs. "We went into it pretty blindly," says Tinney of the business the two partners launched toward the end of the dot-com boom. Faced with a number of upfront expenses but knowing little about how much it all cost, Tinney says "we lived off credit cards and a bit of savings" and wound up about $15,000 in debt.

"We just knew that we wanted to make a living by creating games, and we knew there was a demand for that type of content," says Tinney. But that wasn't enough, he admits. While the venture is now thriving, "if I were starting a new business today, I would certainly do things differently."

It's well known that small businesses rarely make it past the two-year mark and even fewer survive more than four years. The lack of staying power, according to the U.S. Small Business Administration, is due in large part to businesses running out of money before they reach sustained profitability.

That's because starting and running a business, even for those lucky enough to be flush with cash, is often riddled with obstacles and unforeseen money drains. These not-at-all-pleasant surprises can quickly wipe out both business and personal savings, as well as cut into secondary priorities such as marketing and training employees. In short, not planning can leave you with a mountain of debt, or worse, bankrupt.

To insure against an untimely demise, figure out what you'll need and how much it's going to cost before you open your doors. Here's how to assess your business's start-up costs:

About Start-Up Costs

Start-up costs, which are essentially the expenses incurred getting a business off the ground, vary widely depending on what type of business or industry you're in. For example, says Joseph Anthony, a small-business tax professional in Portland, Ore., a service-based business may have to hire and train a large staff while a product-based business may need to spend a substantial sum on patents and trademarks.

Start-up costs are generally broken down into two categories: "pre-opening expenses," such as marketing, advertising and administrative costs, and "organizational expenses," like legal and accounting fees.

What Do You Need?

To figure out what to buy and how much to pay for it, look at what others in your industry are doing, suggests Anthony. Your direct competitors might want to keep mum, so "contact someone who does the business you do but in another market," he says. If your aspirations are high, consider checking out the balance sheet of a publicly traded company in your industry. An accountant well-versed in businesses like yours can be a good cost reference; so can trade publications and industry groups. The SBA offers counseling and assistance through a number of programs .

Calculate Costs

Once you've determined what products or services to buy, figure out whether you can afford it. Many entrepreneurs scrape together enough money to launch a business using a combination of personal savings, credit cards and contributions from friends or family. Try this start-up calculator to see if you've got enough cash to set up shop.

From smSmallBiz

IN 2001, WHEN Wade Tinney co-founded Large Animal Games, a New York online game developer, he and his partner Josh Welber had a woeful understanding of start-up costs. "We went into it pretty blindly," says Tinney of the business the two partners launched toward the end of the dot-com boom. Faced with a number of upfront expenses but knowing little about how much it all cost, Tinney says "we lived off credit cards and a bit of savings" and wound up about $15,000 in debt.

"We just knew that we wanted to make a living by creating games, and we knew there was a demand for that type of content," says Tinney. But that wasn't enough, he admits. While the venture is now thriving, "if I were starting a new business today, I would certainly do things differently."

It's well known that small businesses rarely make it past the two-year mark and even fewer survive more than four years. The lack of staying power, according to the U.S. Small Business Administration, is due in large part to businesses running out of money before they reach sustained profitability.

That's because starting and running a business, even for those lucky enough to be flush with cash, is often riddled with obstacles and unforeseen money drains. These not-at-all-pleasant surprises can quickly wipe out both business and personal savings, as well as cut into secondary priorities such as marketing and training employees. In short, not planning can leave you with a mountain of debt, or worse, bankrupt.

To insure against an untimely demise, figure out what you'll need and how much it's going to cost before you open your doors. Here's how to assess your business's start-up costs:

About Start-Up Costs

Start-up costs, which are essentially the expenses incurred getting a business off the ground, vary widely depending on what type of business or industry you're in. For example, says Joseph Anthony, a small-business tax professional in Portland, Ore., a service-based business may have to hire and train a large staff while a product-based business may need to spend a substantial sum on patents and trademarks.

Start-up costs are generally broken down into two categories: "pre-opening expenses," such as marketing, advertising and administrative costs, and "organizational expenses," like legal and accounting fees.

What Do You Need?

To figure out what to buy and how much to pay for it, look at what others in your industry are doing, suggests Anthony. Your direct competitors might want to keep mum, so "contact someone who does the business you do but in another market," he says. If your aspirations are high, consider checking out the balance sheet of a publicly traded company in your industry. An accountant well-versed in businesses like yours can be a good cost reference; so can trade publications and industry groups. The SBA offers counseling and assistance through a number of programs .

Calculate Costs

Once you've determined what products or services to buy, figure out whether you can afford it. Many entrepreneurs scrape together enough money to launch a business using a combination of personal savings, credit cards and contributions from friends or family. Try this start-up calculator to see if you've got enough cash to set up shop.

Going forward, you'll also need to come up with a pricing plan for the products or services you sell to customers. Not sure? Check out how much the competition charges, suggests Ross Marino, a financial planner at Raymond James in Wilmington, N.C. Then, do the math. You may be forced to cut corners or push off some purchases to be competitive. Once your prices are set, estimate how much you can expect to bring in as income, which will help you develop an operating budget, Marino says.

Build a Cushion

Most entrepreneurs run into problems by overestimating initial sales and underestimating expenses. Rusty Cagle, a financial planner in Greenville, S.C., warns entrepreneurs not to overlook the importance of setting aside enough operating capital as they're considering start-up costs. He suggests providing a cash-cushion or establishing lines of credit to help keep your business afloat for three to six months in case profits don't come readily or if outside economic shocks take their toll. Even in down times, "you have to pay vendors and you still have to pay employees," Cagle says.

Create a Budget

In the beginning, says Marino, it's less about showing off and more about "what'll it take to keep the doors open." He adds that "you'll [also] need to be able to invest back into the business." In your budget, separate costs that recur monthly, such as rent and wages, from one-time upfront costs, such as permits or the fee for creating a limited liability company. Also, be aware that some expenses — for instance, the price of raw materials — may be subject to price fluctuations. He suggests padding your budget by 10% to 20%. "There will be extra expenses that you didn't anticipate," says Marino. Plus, he adds, when problems arise and you need to take time to deal with them, you'll need to compensate for that time you're not producing.

Be sure to also include one-time expenditures such as continuing education courses or attendance at an important industry conference. "People are pretty good about meeting monthly expenses," says Elizabeth Potts Weinstein, a financial planner and small business attorney in San Jose, Calif. "But then a big once-a-year payment hits, and those are the expenses that will put people under water." Once you have a budget in place, she suggests revisiting it once a month. See if your estimates were on point and, if not, revise as needed.

Take Advantage of Tax Breaks

Uncle Sam provides a few tax benefits to offset the risk that newbie entrepreneurs take on. New businesses may elect to deduct up to $5,000 of start-up costs (defined by the IRS as expenses related to investigating or setting up a new business, such as a marketing analysis or advertisements for a grand opening) and $5,000 of organizational costs (more strictly, the direct cost of creating a corporation) in the first year of doing business. The deductions are reduced when start-up costs start to exceed $50,000, and disappear entirely when costs rise above $55,000. (Note: Sole proprietors receive no deduction for organizational expenses.)

Thomas R. Pope, an accounting professor at the University of Kentucky in Lexington, Ky., offers this example: If a business owner spent $32,000 on both start-up and organizational expenses, he or she could deduct up to $10,000. The amount remaining could then be amortized over a 15-year period. For more on this, see the Internal Revenue Service's Publication 535.

"Starting Up," a weekly column written by Diana Ransom for smSmallBiz.com, follows entrepreneurs through the early stages of launching a business. Write to her at dransom@smartmoney.com

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SmartMoney.com provides news, information, and tools for business professionals and growing businesses. All content provided by SmartMoney is © 2008 SmartMoney®, a Dow Jones & Company, Inc. and Hearst SM Partnership.