Prerequisites for New Business Startups
Starting up your own business is a painstaking undertaking. Apparently, a business idea will be the starting point. The problem would be putting up these ideas into action. A basic requirement would be on the part of the entrepreneur wherein s/he will have to answer the question: Do I have what it takes? Commonly cited characteristics include motivation, confidence, willingness to take risk, ability to make decisions, human relations skills, communication skills, technical ability and vision (2005). A way to increase the likelihood of the success of the business is goal-setting, which must be measurable, scheduled, realistic and written .
Conducting a comprehensive market research would be the next step in order to describe the competition and the market place as well as the future necessary marketing strategies. A market research could be either primary or secondary or the combination of the two. According to (2004), market research answers questions such as what is currently happening in the market, who are the competitors, what are the most recent consumerism trends and what is the need of the market. Hence, a market strategic provides foundation for strategic position of the start-up business as well as identifying the risks of the business. Market research directly benefits the business of the operational and business-level strategies to pursue in order to build and maintain a competitive advantage hence increasing chances of profitability ( 2003). Informations obtained could assist the business to decide on the basic entry decisions as well which include which markets to enter, when to enter the market and on what scale, and the choice of entry could be considered also. These are the basic legal that the entrepreneur must think about as well as the personal management style and which business model to adapt. Choosing the location of the business which depends on the types of goods and services to be offered is crucial as well ( 2005).
Business planning is also critical. According to (2007), a business plan is a written statement that describes and analyses the business and provides detailed projections about its future. A business plan is considered as the roadmap for the development of a company as it purports in developing and implementing the ideas into actual business practices, products or services; identifying strengths and weaknesses of a company and its competitors; developing guidelines for the operations of the company and assisting to obtain financial resources from lenders or investors. The importance of writing a business plan is to strategically analyse the environment into which the business will venture through industry assessment and competitor analysis as well as to decide on the most appropriate modeling techniques. As such, business plans are decision-making tools which ensure profitability and resource optimization. Business plans also improve the business concept as well as the odds of success .
In connection with creating a business plan are selecting business structure and creating key business assets. In selecting the company structure, the entrepreneur must take note of the obligations and responsibilities that come with it. (2003) assert that a critical aspect is to understand all the business structure specifically determining the advantages and disadvantages before deciding on the suitable option which best fits the business. The plan also covers the financial and legal and liability issues aspects of starting the business. It is an imperative for an entrepreneur to pay special attention to the tax implications and government formalities and requirements such as insurances and registration and licensing and compliances with recordkeeping and bookkeeping standards. This is important in protecting the business assets which include website address, trademarks, copyrights and patents (2003; 2005).
Further, an entrepreneur must be selective and smart when seeking capital for the startup which could be either equity or debt. Equity refers to the owner’s or stakeholder’s original investment while debt (or loan) comes from other funding source (2005). At this point, determining initial investment and sources of capital is important. After this, organizing logistics shall be accomplished. There are nine areas of logistics to consider: accounting, legal services, insurance, banking, information technology, website development, merchant baking/e-commerce, travel and real estate. Simply, this could be said as seeking professional advice. Staffing would be the next step wherein competent and functional employees will be placed in value-adding positions of the business. Putting the right skills for the right job at the right time shall be accomplished ( 2009).
In sum, starting up a new business has the following requirements: business in forms of entrepreneurial preparedness and market research; legal in terms of compliances to standards and financial considerations including source and type of capital.
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Funding Options for the Startup Business
For the business to happen, startup costs must be pooled first because even if the entrepreneur would have best ideas to apply without the money it will be all useless. First is bootstrapping or own self by using savings, initial revenues, credit cards and equity from home among others ( 2009). (2002) puts it that credit card, for instance, could be a great tool for cash flow management especially for short-term financing.
Second may come from different sources one of which is, aside from putting own money, through family, friends and relatives borrowings. These people could provide both loans and equity deals and are less stringent than commercial loan providers when it comes to the credit and expected return on investment ( 2003).
Third, an entrepreneur could consider debt financing or borrowing money from financial institutions like the bank. Bank loans, for example, come of carried shapes and sizes, and are relatively easily to obtain when backed by assets or third party guarantors, as told by (2002). (2009) contend that an entrepreneur must qualify to avail a traditional bank loan or those from bank which can provide an SBA guaranty.
If commercial banks say no, then the entrepreneur could resort in private lending. Private lenders look for similar information and will conduct similar due diligence as the banks, except that they typically specialize in an industry. Nevertheless, private lenders are willing to take on higher risk loans if they see that that business has a promise.
(2009) also noted that a startup could take advantage of grants or specialized programmes provided for small businesses and certain industries that are essentially ‘free’. Examples of these are technology, veteran-owned, women-owned and minority-owned businesses (, 2009). Grants may come from the government and foundations. A drawback, however, is that the objectives of the business must be aligned with the objections of these parties.
Leasing is the sixth option. If the startup requires big-ticket items such as equipment, vehicles or computers, building a relationship with suppliers is a must. (2007) noted that there are leasing companies who will let businesses and individuals rent their equipments on a trade-in basis similar to a rent yard while also offering repair and maintenance. There are also full finance leasing companies who will buy equipments needed by an entrepreneur and agree on mode of payment.
Angel investors or those who invests in companies early in exchange for equity could also help in financing the start up. According to (2009), an entrepreneur approaches an angel investor when they have already exhausted their friends, family and relative but who are not yet ready to approach venture capitalists. Angel investors then fill the gap between these two parties (, 2002).
Venture capitalists are companies or individuals who can provide large amounts of capital to the business and expect higher returns. Such source of funding is only used by entrepreneurs who already have a great track record in the field. Further, these capitalists provide not only money but also know how and networks (, 2009).
Finally, factoring could be also considered wherein a financial institution or the factor advances the money of the entrepreneur against proceeds from his or her outstanding accounts receivables. Funds are therefore provided quickly but involve a substantial ‘cost of money’ (, 2009).
All in all, an entrepreneur could acquire funding or capital from: own, family, friends and relatives, debt financer like banks and private lenders, grants, leasing companies, angel investors, venture capitalists and factors.
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