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Ten tips

Plan well to start a small business

By LAURA T. COFFEY
Published July 31, 2005

Many people dream of starting their own business and being their own boss - and many people fail to make a go of it, despite weeks, months and years of hard work. Indeed, starting and running a successful business is very difficult. The following tips can help.

1. Focus. Write up a business plan, even if you don't intend to apply for a loan from a bank or through the Small Business Administration. You'll be grateful for the clarity of vision, and so will anyone who works with you in the early days.

2. Keep your day job. Cherish that steady flow of income until your startup has enough customers and revenue that a) you're far too overwhelmed to work your regular job and handle the demands of your business, and b) you'll be able to keep a roof over your head and food on the table.

3. Don't get sloppy. Before you make the break, be diligent about keeping your efforts to start your business entirely separate from your day job. Otherwise, your employer could be justified in letting you go or arguing that your work belongs to him since you used his property and time to do it.

4. Do some hard calculations. Ask yourself: How long can you live on your savings? That is, after all, the most common form of startup funding for many who start businesses. Determine how much money you'll need to live frugally, as well as how much you'll need to start and run the business. Don't tap your retirement savings for any of this.

5. Be careful with debt. You aren't likely to score a business loan from a bank unless you're willing to personally guarantee it, typically by offering your home or investments as collateral. You could dip into your home's equity, but then you'd be on the hook to repay it.

6. Look at financing alternatives. Consider whether these people might want to buy in as investors: friends and family; potential customers; equity Small Business Investment Corporations (SBICs), which can be found through the U.S. Small Business Administration; and angel investors, whom you may hear about through lawyers or accountants.

7. Keep good records. Keep business and personal expenses separate. Once you've got some money coming in, get set up with bookkeeping software. One payoff: You may be able to deduct up to $5,000 of startup expenses paid or incurred after Oct. 22 as a current business expense.

8. Line up professionals and advisers. You may excel in your area of expertise, but you'll also need a specialized team that includes a lawyer, accountant, banker and insurance agent, as well as trustworthy advisers who understand your sector and your business. You can meet people through professional organizations or your area Chamber of Commerce.

9. Maintain health coverage. After you leave your job, you can temporarily stay insured under Consolidated Omnibus Budget Reconciliation Act (COBRA) regulations for up to 18 months until you can line up a more cost-effective or appropriate health plan.

10. Keep the money coming in. Consumer Reports Money Adviser cites these suggestions from William Bygrave, co-author of the Global Entrepreneurship Monitor (GEM) survey: Lease or rent assets if possible instead of buying them. Buy on credit. Negotiate 60-day payment due dates with creditors. Provide discounts for prompt payment. Send out an invoice immediately after performing a service or shipping goods. Without offending customers, chase after them as soon as payments are overdue. Accept down payments or progress payments from customers.

-- Sources: Consumer Reports Money Adviser (www.consumerreports.org) Microsoft Small Business Center (www.microsoft.com/smallbusiness) National Association for the Self-Employed (www.nase.org)

[Last modified July 28, 2005, 19:40:03]