True or false? Most businesses fail because they lack adequate start-up
capital. Sadly, it is true: before you begin your business you must
have enough money and other "equity" that can be used to pay creditors
or as collateral for loans to sustain you throughout the business cycle.
It is essential for the budding entrepreneur to plan wisely. How much
money will be required to start the business? When computing this, be
sure to include physical assets like computer equipment, monthly or
yearly leases on a store, warehouse or factory, advertising and marketing
costs, employee wages and benefits, and don't forget -- taxes. Even
the simplest home-based business must be prepared to hand over at least
15% of its income in self-employment tax. Be sure to compute your full
operating costs for at least the first year of business.
Do you have an adequate source of funding for your enterprise? Have
you calculated your costs and projected income for the next five years?
When do you expect to break even? Design a three-year plan of how you
intend to become profitable, especially if you plan to eventually apply
for a loan or attempt to solicit investors. In any case, it is a practical
exercise that can give you a more comprehensive overview of what you
need to do to succeed.
The U.S. Small Business Administration (SBA) offers an excellent guide
to writing your business plan: