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Starting a Business

ZipLaw Gold CDStarting and managing a business takes motivation, desire and talent. It also takes research and planning. To increase your chance for success, take the time up front to explore and evaluate your business and personal goals. Then use this information to build a comprehensive and well-thought-out business plan that will help you reach these goals.

The process of developing a business plan will help you think through some important issues that you may not have considered yet. Your plan will become a valuable tool as you set out to acquire money for your business. The plan should also provide milestones to measure your success.

Getting Started

Before starting out, list your reasons for wanting to go into business. Some of the most common reasons for starting a business are:

Next you need to determine what business is "right for you." Ask yourself these questions:

Then you should identify the demand your business will fill. Conduct the necessary research to answer these questions:

The final step before developing your plan is the pre-business checklist. You should answer these questions:

Your answers will help you create focused, well-researched business plan that should serve as an outline. It should detail how the business will be operated, managed and capitalized.

Financing Your Business Start-Up
The key to a successful business startup and expansion is your ability to obtain and secure appropriate financing. Raising capital is the most basic of all business activities. But, as many new entrepreneurs quickly discover, raising capital may not be easy; in fact, it can be a complex and frustrating process. However, if you are informed and have planned effectively, raising money for your business will not be a painful experience.

Finding the Money You Need
There are several sources to consider when looking for financing. It is important to explore all of your options before making a decision.

Personal savings: The primary source of capital for most new businesses comes from savings and other forms of personal resources. While credit cards are often used to finance business needs, there may be better options available, even for very small loans.

Friends and relatives: Many entrepreneurs look to private sources such as friends and family when starting out in a business venture. Often, money is loaned interest free or at a low interest rate, which can be beneficial when getting started.

Banks and credit unions: The most common source of funding, banks and credit unions, will provide a loan if you can show that your business proposal is sound.

Borrowing Money
It is often said that small business people have a difficult time borrowing money. This is not necessarily true.

Banks make money by lending money. However, the inexperience of many small business owners in financial matters often prompts banks to deny loan requests.

Requesting a loan when you are not properly prepared sends a signal to your lender. That message is: High Risk!

To be successful in obtaining a loan, you must be prepared and organized. You must know exactly how much money you need, why you need it, and how you will pay it back. You must be able to convince your lender that you are a good credit risk.

How to Write a Loan Proposal

Approval of your loan request depends on how well you present yourself, your business, and your financial needs to a lender. Remember, lenders want to make loans, but they must make loans they know will be repaid. The best way to improve your chances of obtaining a loan is to prepare a written proposal.

A well-written loan proposal contains:

General Information: Business name, names of owners and the business address. It should also describe the purpose of the loan, exactly what the loan will be used for and why it is needed. You must state the amount required and the exact amount you need to achieve your purpose.

Business Description: History and nature of the business, details of the kind of business it is, its age, number of employees and current business assets. The business description should also include the ownership structure and details on your company's legal structure.

Management Profile: Develop a short statement on each owner in your business providing his/her background, education, experience, skills and accomplishments.

Market Information: Clearly define your company's products as well as your markets. Identify your competition and explain how your business competes in the marketplace. Profile your customer base and explain how your business can satisfy their needs.

Financial Information: Include financial statements, balance sheets and income statements for the past three years. If you are just starting your business, provide a projected balance sheet and income statement for the next three years. You should also include personal financial statements on yourself and other owners of the business. Identify collateral you would be willing to pledge as security for the loan.

How Your Loan Request Will Be Reviewed
When a lender is considering a loan request, the lending officer considers the following:

The amount of personal savings or equity you are investing in your business. Lenders will not finance 100% of your business and generally want to see you personally invest between 25-50% of the business costs. If you are not willing to invest in your own business, then why should the lender?
Your creditworthiness. The loan officer will rely on your work history, letters of recommendation and your payment history to make this determination.
Your education, experience and training in relation to operating the proposed business.
Your loan proposal and business plan. The loan officer will review these documents to determine your understanding and commitment to the success of the business.
Cash flow. Does your business have sufficient funds to make the monthly loan repayment?

Tax laws can be extremely complex. Therefore, small business owners are strongly encouraged to seek professional assistance regarding taxes, as they are solely your obligation. Understanding how tax systems impact your business is critical.

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