Probably the most important consideration to take into account when starting a small business is financing. If raising the capital you need to start your business will put your home or retirement savings in severe jeopardy, it may be worthwhile to hold off on starting your business until you’re able to find a source of collateral that won’t leave you in the street if things go south.

Loan rates are also an important factor to consider when getting financing for a new small business. If theinterest rate on your loan is too high, you may want to wait until your credit improves, you can find a partner or until you can find an alternate source of financing to start your business.

Gauging the demand for your potential business is also important. If the local market for your business is already thoroughly saturated, or if the online niche for your products or services already appears to be filled and you’re unable to offer something different from the existing businesses, you may want to hold off on starting your business.

Compliance with zoning and other regulations is also a key factor to consider when starting a new business. If your new venture is on shaky legal ground concerning zoning laws, state health and safety regulations or other rules, you may want to delay starting a business until you can get a black and white determination of the legality of your venture.

Supply chains are important to businesses in that they determine whether the business will be able to meet its customers’ needs. If you can’t get the logistics of how you’ll get supplied with the materials you need for your business, you may want to wait on starting up until you can find a better solution or better location.

Your personal life also plays a role in whether you’ll be able to successfully start a new business. If you’re going through a divorce, it may not be the time to start a small business, as the legal proceedings could put the status of your investment in your new business in jeopardy. Also, significant health problems or substance abuse issues may need to be resolved before you can put your best foot forward in starting a new business.

Buying an existing business

If you’re considering buying an existing business and making it your own, there are a few red flags that might be worth heeding.

For example, if you’re stepping into the shoes of a partner who is departing a business, it’s worthwhile to look into the history of the partnership and the background of the other partner before buying. A history of contentiousness between partners or evidence of recklessness or negligence by the remaining partner may dissuade you from buying into a bad situation.

Finances are another key factor, if not the most important factor, to consider when buying in to another business. You should evaluate your finances carefully to see whether you have the money to fund renovations or changes that may be necessary and absorb losses in the transition period.

Also, while finding undervalued assets and turning them around is a common aim of many businessmen and women, it’s not always attainable. If you’re considering buying a business that’s had some public image problems or difficulties related to its facilities or logistics, you may want to think twice before making a potentially expensive plunge. Consider the problems of the business you’re acquiring and whether you have the skills, know-how and will to turn them around.

While entrepreneurs shouldn’t be discouraged from taking risks and starting new ventures, it is important to consider the risks of a new venture carefully and determine whether the likelihood of success adequately outweighs the risk of failure when starting a new business.

As prices rise, incomes stagnate and the pressure gets ever tighter on the middle class, more and more people are starting part-time small businesses to supplement their income and create an escape hatch in case their full-time job disappears.

A growing number of people are underemployed, meaning that they work at part-time jobs or have had their hours cut back at full-time jobs. According to the Bureau of Labor Statistics, nearly 8.8 million people are employed part-time because their hours have been cut back or because they’ve been unable to find full-time work.

Many of the underemployed are turning to part-time work outside their regular jobs to supplement their income and establish a safety net in case they join the nine percent of Americans who are unemployed. Many of these people are starting their own business ventures, contracting their services out online or from home businesses, becoming what’s known as moonpreneurs.

For example, many professionals who are underemployed are turning to freelance work Web sites such as Elance to utilize their skills to earn more income. Moonpreneuring via online work helps part-timers because it often lets them find work that they can fit into their schedules and can complete from the convenience of their own home.

According to a recent survey, nearly 36 percent of people who work online via Elance said they started doing it to supplement their income from their regular jobs.

When becoming a moonpreneur, it’s worthwhile to consider the following:

Start-up costs. Starting your own part-time business may have some costs, including membership fees, equipment costs, materials costs, etc. Make sure starting your own part-time business isn’t going to cost you more than it makes you.

Work/life balance. Be sure not to get so overloaded with work that your family life and social commitments suffer. Overwork will quickly impact the quality of work you can offer, and can be harmful to your health as well.

Building your business. Chances are the going is going to be slow to begin with. Be patient and build your business one satisfied customer at a time. As time goes by and you build up a good professional reputation and a stable of repeat clients, your business will expand.

Time management. Make sure not to overcommit to projects and take on more work than you can possibly complete. Set reasonable completion dates that are accurate for your clients. The best way to avoid overwork and handle your time optimally is to become an expert at planning, scheduling and using your time wisely.

Tax issues. Don’t forget that your other income is taxable too. Be sure to pay the appropriate FICA and income taxes on your moonpreneur income or you may get a visit from the IRS.

Don’t forget your day job. While it’s not providing the income that it used to, your day job is likely responsible for the majority of your income. Don’t let your performance at your regular job slip because of your afterhours work. Also be aware of any non-compete or other clauses that might land you in hot water if you’re caught moonlighting.

Moonpreneuring can help you supplement your income and provide a way to further your professional development. As time goes by and the business grows, you may even want to take it full time at some point. The key to successful moonpreneuring is planning and scheduling, finding an appropriate work/life/work balance and providing quality results to your clients.

The vast majority of businesses have three ownership options:

A privately-held business with a sole proprietor. In this form of business you are the sole owner of the business and all decisions regarding the business are your call. This is perhaps the most popular form of new small business ownership model. The advantages of the sole ownership model are that it is less expensive and easier in the start-up phase, as no attorneys will be needed to draft partnership agreements, all of the profits of the business will go to the owner and there is no possibility of challenges to your leadership from shareholder or partner lawsuits.

The main disadvantages of being the boss, are being the boss. In a sole proprietor business, you assume all of the risk, you have no one to share duties with unless you hire employees and the burden of all decisions rest upon your shoulders alone.

A privately-held business with shared ownership. This form of business has two or more partners sharing risk, decision-making and profits. This can be beneficial if you and a partner have complimentary skills that are vital to the success of your business, or if you or your partner have access to needed start-up capital. Partnerships can be tricky if there is friction among the partners or shareholders that result in leadership struggles or lawsuits.

When forming a privately-held partnership, clear roles need to be defined for each partner.  Deciding on ownership share and the rights and responsibilities of each partner is key to avoiding expensive legal conflict. When starting your partnership, engage an attorney to draw up partnership agreements that answer a number of questions including decision-making authority, dissolution of the partnership, buy-outs, and succession should one of the partners die or become unable to contribute to the business.

There are typically two types of partnerships, general partnerships, where each partner shares in liability and limited partnerships where there is one or more general partners and a number of limited partners whose liability is limited.

If your partnership involves minority shareholders, understand that they have avenues of appeal should they become disgruntled with how the business is being run.

Corporations. Corporations are free-standing legal entities, meaning that while shareholders may come and go, the corporation will continue despite changes in ownership. Most small businesses don’t start out as corporations, but eventually evolve into them as they grow. However, the corporation structure is advantageous to some start-up businesses, particularly the limited liability company version.

The advantages of the corporate structure is that it limits the liability of the principals (which is important if you’re pursuing a business likely to generate lawsuits), quick and easy transfer of ownership, the ability to raise capital by selling shares and certain tax benefits.

The disadvantages of forming a corporation are the costs involved in getting all the paperwork done and complying with regulations regarding corporations, the potential for shareholder lawsuits and certain tax disadvantages that occur in C corporations regarding dividends.

There are three types of corporations:

C corporations – This is the traditional corporation. This business structure is typically used by large businesses. The C corporation pays taxes as a free-standing legal entity and profits are taxed at the corporate tax rate. Profits paid as dividends to shareholders are taxed at individual income tax rates.

Subchapter S corporations – These corporations are more appropriate for small businesses. S corporations are limited to businesses with fewer than 75 shareholders and provide the liability protection to shareholders that the traditional corporation does. Profits from the S corporation are taxed as individual income as they are divided among shareholders.

Start-up businesses would do well to incorporate as S corporations, as losses from the business can be deducted against owners’ individual income.

A limited liability company – This is a form of partnership that is becoming increasingly popular. Limited liability companies are a type of hybrid between partnerships and corporations. The owners, called members, are limited in their personal liability for the debts and actions of the company, and the LLC provides tax and management benefits similar to those of partnerships.

When setting up a legal structure for your small business, be sure to hire a reputable, competent attorney to see you through the process. An attorney can explain the benefits and disadvantages of each type of legal structure and draft documents to address the particular needs of your partners or your business. Attorneys are absolutely necessary when forming a corporation, and are advisable to have when forming a partnership. Sole-proprietors of businesses may want to engage an attorney to help draw up documents regarding how the business will be disposed of should the owner die or become incapacitated.

Where you set up shop for your small business is an important consideration for many reasons. The physical location of your business is important because it determines whether you have adequate facilities in which to conduct your business, influences the public image of your business and is a factor in logistics.

For many web-based businesses, location isn’t really a big concern beyond having reliable electric and Internet services and comfortable surroundings. For businesses that need a brick-and-mortar location, choosing the right spot for your business is critical.

In general, there are five types of business locations:

Homebased – These businesses are, as the name suggests, operated from the home of the proprietor. Many types of businesses can be homebased, including professional services such as tax preparers or small scale industries such as bakeries or autoshops. If you chose to go the homebased route, make sure your landlord, mortgage broker and/or insurer are okay with it, and also make sure that your home has the facilities you need to operate your business and is inviting to potential customers.

Retail – Retail space is best suited for stores, shops or professional services and can typically be found in shopping centers, stand-alone buildings or special districts. Zoning laws typically dictate what type of business is classified as a retail operation and can operate in retail space.

Mobile – Some businesses can operate from trucks, vans or automobiles. Independent delivery, curbside businesses or businesses that make house calls can typically operate from a mobile location.

Commercial – Commercial space is best suited to offices, who don’t need as much parking and access as retail stores. A solid commercial location can add value and prestige to a business based on its location. Some commercial landlords even offer copying, secretarial and other services to tenants.

Industrial – Industrial locations have the water, sewage, disposal, electrical and other access necessary for the needs of industry.  Industrial-type businesses typically aren’t suited, or even allowed, in other types of business locations, so if your small business involves handling dangerous materials or industrial processes, finding an industrial location is necessary.

When picking a location, consider the following factors:

Price – Rent is a big factor in most small businesses’ budgets. While having an office in a swanky complex may seem nice, if you’re on a shoestring budget you may want to hang your shingle on your own front door until your business gets off the ground. Choose a place that’s appropriate for your business and your budget.

Safety – Is the place you’re looking at renting in a high-crime neighborhood? Is the area appropriate for the type of business you want to conduct. Your customers are likely to have preferences about where they choose to shop and visit, so locating your business in an appropriate location suitable for your type of business is important.

Facilities – Does the place you’re considering for your business have facilities adequate to meet the needs of your business? Electical and Internet connections, phone service, water outlets, ventilation, sanitation and space are all important considerations when choosing a physical location for your small business.

Accessibility – Customers can’t use your business if they can’t find it or have difficulty parking there. When choosing a location for your business, make sure that it is easy to find and that ample parking is available. A visible location with good signage is a 24/7 advertisement for your business, so make sure your location can be seen.

Aesthetics – Choosing a physically attractive location is also important, as customers may equate an ugly building or squalid conditions with an unprofessional operation. If your location is less than perfect, see if you can get your landlord to do some renovations, or see if you can do them on your own.

Zoning – When opening up shop, it’s important to be sure that your business complies with all state and local laws concerning the uses of property at your location. Many a business has been shut down because it was in an area not zoned for business or industry or because it was unable to comply with environmental or safety rules for its location.

Neighbors – Are your neighbors likely to be disturbed by your business? Are you likely to be disturbed by theirs? While a Christian bookstore and an exotic dancing lounge are both legitimate businesses, they may not make the best neighbors. When choosing a location, consider your surroundings to be sure you’ll fit in with the other businesses and homes in your area.

By making the right call with regard to location, you can maximize your appeal to potential customers, ensure safety and security, comply with the law and avoid complaints from neighbors and other concerned parties.

Despite it’s utility, there still remains a significant number of small business owners who don’t quite feel comfortable with social media yet. According to a recent SMB Business Perspectives poll, about a quarter of entrepreneurs surveyed said they are not yet comfortable with using social media. However, now may be the time to get acclimated to social media, as the same poll revealed that about 40 percent of small business owners in 2012 intend to join the 33 percent who are using social media to reach out to their clients.

More than two-thirds of Americans use social media of some sort, and social networks like Facebook and Twitter are being embraced by all age groups and demographics. Facebook alone has more than 800 million users online, and Facebook is the site users spend the most time visiting.

Put together, the top three social networks, Facebook, LinkedIn and Twitter got more than 2.5 billion visits in just a month, and have phenomenal growth rates. In 2009, Facebook grew by 210 percent, LinkedIn grew by 85 percent and Twitter grew by more than 600 percent.

The great thing about social media and small business is that it’s completely free to use. Small business marketing budgets tend to be tight, but by starting a Facebook, Google + or Twitter account, or all three, you obtain a free way to put your message out to the public 24/7 at no cost.

When using social networking to appeal to customers, it’s important to remember the purpose of your Facebook page or Twitter account and use it accordingly. Misuse of social networking can result in embarassing gaffes or a loss in business. The following are a list of social media rules for small business that can help you effectively use social networking to aid your business in growing.

1. Start with a complete page. When setting up a social media account, don’t forget to add all the important details. Describe your business, giving a concise, but complete list of what you have to offer. Also, add directions and contact information, and a link to your website. Once you’ve done all that, go back and proofread your work, as bad spelling and grammar can be a turnoff

2. Add pictures. Half the fun of Facebook and social networking is seeing pictures of your friends – including friends who are business owners. Give your online fans a chance to see your business from the inside with photos of your facilities. Also include pictures of office parties and events at your business to make your fans feel like a part of the family. If you break ground on a new site or get a new product, include photos to keep your fans up to date on how your business is progressing.

3. Stay in touch. Frequently post to your site, announcing new developments, events, job openings, etc. If you’re a wit, or have an employee who is one, you may want to include the occasional witticism or Internet meme on your site, depending on your audience.

Keeping your site frequently updated keeps it fresh and keeps your audience engaged and interested in your business.

4. Keep your audience in mind. When posting to your site, keep your business’ target audience in mind. Bars and restaurants can be more informal and irreverent, while professional services may need to keep the tone a little more vanilla.

When marketing your business, you have an overall image of the business that you’re trying to convey. Don’t let out-of-character or off-message marketing efforts detract from the overall narrative concerning your business.

5. Think before you tweet. A series of embarassing social media faux pas have left celebrities and businesses with egg on their face in recent years. Don’t impulsively post or Tweet the first thing that comes to your mind. Before posting something to a social networking page, consider your business, its audience and whether the post you intend to put out for the world to see will help or hurt your enterprise. A little self-censoring now can help head off a lot of apologizing later.

6. Reach out to your friends. Get your friends and family following or friends with your account, and ask them to let their friends know about your business and encourage them to sign up for your tweets and stati as well. By getting your friends to bring their social network into your business’ orbit, you can start the ball rolling toward big results in your social media marketing strategy.

7. Keep it positive. While it’s okay to make the occasional snarky comment, on the whole, you want to keep your posts and tweets positive. Don’t use your social media to badmouth competitors or anyone else, as it can result in some pretty unpleasant consequences. Remember the rule of good karma when posting, and you should be fine.

8. Limit who is allowed to post. If a disgruntled employee has access to your social media account, he or she can do a lot of damage with inappropriate tweets, pictures or comments. Restrict which employees have the ability and permission to post to your site, and be sure to monitor your social media page for unintentional inappropriate content.

9. Offer deals and promotions online. By frequently offering deals and promotions via your Facebook page or other social media, you’ll keep your clients coming back to your page again and again, and keep your business on their minds.

10. Snoop the competition. Sign up on your competitors accounts and keep track of what they’re doing to get a better idea of what and what not to do with your own social media strategy.

Social networking is all about creating communities. By using Facebook, Twitter and other social media outlets to keep your customer base informed and entertained, you can build up a community around your business that will embrace and support it, helping you boost sales and profits.

Social media is an extremely useful marketing tool to small business. It can help in lead generation, direct appeals to clients, image and branding and a host of other activities. By getting online and making social media a priority for your business, you can get a leg up on less tech-savvy competitors and improve your small business’ chance of success.

Finding financing to start up your small business is a key hurdle that many first time small business people find difficulty in negotiating. However, there are ample financing opportunities for would-be entrepreneurs out there, it’s just a matter of knowing where to look and how to ask.

The first step you need to take in acquiring capital for a small business is to write a business plan. A business plan is a document that outlines the basis and the mission of your business and how you expect to launch it and help it grow in the current economic environment. Business plans help lenders assess the viability of your business and the competence of its management, so having a solid business plan is important.  A good business plan should have an executive summary, market and industry analysis, operational overview and financial segment that gives estimates of how the business means to move forward to profitability.

Many small businesses are launched with investments from family, friends and partners. A key advantage of this arrangement is that the money can often be raised with a minimum of paperwork, but the amount of money available in these arrangements is often limited. Also, it can cause strains in friendships and family relationships, particularly if the business fails to prosper.

Banks and other lenders are an important source of capital for small businesses. When borrowing from a bank or financial institution, you typically must put up collateral and also convince loan officers that you and your business are good credit risks.

If you have difficulty in getting a loan from a bank, or if the interest rates the bank wants to charge you for a loan are exorbitant, consider doing business with a credit union. Credit unions are designed to provide members with low-interest loans, particularly for personal needs like mortgages, car loans and small business startup capital.

The Small Business Administration makes a variety of loans available to people who want to start a business. The SBA typically makes these types of loans available:

7a loans are typically loans made through banks and other lending institutions to small businesses with special needs, such as export businesses or businesses that work in rural areas or other highly specialized purposes.  For example, some 7a loans are available to entrepreneurs who want to start businesses in underserved or undeveloped areas.

The SBA’s microloan program makes small loans (less than $50,000) to businesses to buy equipment, material or machinery. The loans may also be made to daycare centers. The average microloan is for $13,500.

The SBA’s CDC/504 loan program typically awards loans to businesses to buy equipment or facilities. The loans are intended to develop communities and larger amounts can be borrowed by businesses meeting certain policy goals such as hiring minorities and women or business district revitalization.

Perhaps the best way of finding out about the small business loans available to you is to contact the Small Business Administration. This government agency can help you determine if you’re eligible for any government-sponsored small business loans or other programs to help you acquire capital.

For entrepreneurs who want to start a home-based small business, there are a variety of factors they need to consider before hanging a shingle on the front door and opening for business. Home-based businesses can provide great sources of supplemental income or become full time careers for their owners.

More than 12 percent of American households now operate a
home-based business, according to the Small Business Administration. All
totaled, there are more than 18 million small home-based businesses in the U.S. and nearly 70 percent of them last three years or more.

Considering the trends, and the instability of the
traditional workplace in today’s economy, there’s little wonder that more and more people are starting home-based businesses as a means of providing
supplemental income or as a potential launching pad for a new career.

It’s no small decision to launch a business in your home,
however. Your business will take up space and will require some compromises
from your family in order to function. When considering starting a home-based business, you should take the following into consideration:

Appropriateness: Is your home the right place for the
business you want to start? Does it have the facilities needed for your
business? Will customers feel comfortable coming there? Is it easy to find? If
your business won’t entail customer visits, does it have what you need to
perform the work of your business?

Making sure that your home is the right place for a home business is essential. If having your business in your home violates zoning or safety laws, it may be shut down by government regulatory agencies. Even worse, serious violations may lead to your home becoming unsafe for habitation. Make sure you’re in the clear regarding zoning and safety before setting up shop at home.

Space: If you’re setting up a home office, you need an area
where you can have the quiet, distraction-free environment you need to talk to clients on the phone and work unimpeded. If your work involves equipment or machinery, you need an area of the home where your equipment is not in danger of being damaged by children, guests or pets and ample storage space for your products.

Tax exemptions. There’s some pretty advantageous tax breaks
out there for home business owners. Home business owners may be able to deduct a portion of their rent or mortgage and utility bills from their income taxes.

When starting a home-based business, it pays to check into the tax exemptions and deductions that you may be able to claim. These tax advantages can help you keep more of the money you earn in your business, making it even more profitable. Remember that most of the expenses you incur as a result of your business, supplies, materials, professional dues, etc. can be deducted from your taxable income.

Family support: Having a business in your home will require
the support and cooperation of your family to provide you with the space and
time to handle your work. Scheduling, space and other issues will have to be
agreed upon by your family to prevent conflict.

Before choosing to start your home-based business, have a family meeting to discuss the business and how it will impact the family. By getting your spouse, children or parents involved and enthusiastic about the business, you may be able to improve its chance of success.

Insurance considerations:  If you start a home based business, you may
need to purchase a rider to your homeowner’s policy to provide liability
protection to yourself and your home-based business.

Having appropriate insurance coverage can be important, as damage to your home resulting from your operation of a home-based business may not be covered by an ordinary homeowner’s policy.

Business licensing. Depending on the type of business you’re
starting, you may need to purchase a business license. Contact your local
municipal government if you think you may need to purchase a license to operate your business.

Think about zoning regulations. Cities and towns may have
restrictions on what kind of business you can operate from your home. If your business results in substantially increased traffic on your street, parking issues, noise or involves chemicals or hazardous materials, you may not be able to operate your business from home.

By considering all the angles, you improve the chances of your business being one of the lucky few to survive its first year and prosper.

Your business plan has two main goals: providing yourself and your employees with a clear mission and goals, and providing potential lenders and investors with the information they need to determine whether they should back your business. A business plan isn’t something you should take likely or just use a template to create – drafting a business plan gives you the opportunity to examine all the angles for the new venture you’re proposing and plan for adverse and beneficial future developments.

A well-drafted business plan will prod owners into researching markets, think about potential problems that may arise and their solutions and evaluate the competition, making the business plan writing process a very valuable tool for business owners.

Most business plans typically have six basic parts:

1. The business description. In this part of the business plan, the owner writes a mission statement for the venture and also defines the type of business he or she is starting. For example, if you were starting a grocery store with a home delivery business you would explain the purpose of your business, differentiating how the business goes beyond traditional grocery stores.

This segment of the business plan will also describe the legal structure of your business (corporation, partnership, sole proprietorship) and also describe how your company will differ from possible competitors in your market.

2. Management. This part of the plan describes the management team of your business and their education and experience. It’s essentially a resume that lenders can look at to see if they have confidence in your business’ management.

3. Marketing plan. The marketing plan describes how you intend to sell your products or services and gives an overview of the industry you’re competing in, and identify your business’ opportunities in that industry. Potential customers are identified in this portion of the plan and other information such as your distribution logistics, the benefits of your product or service to customers, your advertising strategy and your pricing targets are also described.

4. Operations. This segment of your business plan outlines the nuts and bolts of your operation. The plan will describe the type of labor you will need at your business and how you intend to recruit, train and retain them, the compensation for yourself and employees, what outside vendors you will use for materials and equipment and how you intend to form relationships with these vendors and how you intend to handle the accounting and bookkeeping needs of your new business.

5. Risks. This portion of the business plan allows you to analyze and explain what could go wrong with your business and how you intend to mitigate the risks and handle adverse circumstances if they occur. When presenting your business plan to lenders and investors, it does not pay to downplay or ignore potential risks, as its likely your lenders or investors may spot them and think less of your ability for not having addressed them in the plan.

6. Financial management plan. This part of the business plan will show projections of your business’ short and long-term profitability. The financial management plan will include an income statement that explains how your business will generate cash and make estimates concerning revenue, expenses, capital and costs. The income statement typically includes an estimated monthly income statement for the business first year of operations, quarterly statements for its second year and yearly statements up to year five of operation. The cash-flow statement will discuss how money will flow in and out of your business for its first few years and let investors know how long it will be before your business starts showing a profit. The final piece of the financial management plan is the balance sheet, which will list your business’ assets, liabilities and equity, typically for five years.

7 Business Plan Tips

Now that you know the basic parts of a small business plan, here are a few tips on how to write an effective one:

• Clearly define the solution your business intends to offer to customers, and how your solution differs or is better than competitors’ solutions.
• Honestly and completely evaluate the risks involved in starting your business. Lenders and investors won’t be impressed by a business plan that doesn’t take account of potential risks, and if you fail to plan for the risks to your business, they may take you by surprise.
• Seek second opinions. Talk to trusted associates about your business plan and let them see if they can point out any potential holes in your plan or areas where more planning may be necessary.
• While it’s good to seek an extra set of eyes for your plan, make sure they’re not your competitor’s eyes. Keep your business plan safe from potential competitors by only allowing trusted friends and mentors to view it.
• Remember that your business plan is a living document. Your business plan is not etched in stone tablets. As circumstances change or new opportunities arise, or as you gain experience, you may need to change aspects of your business plan to reflect these shifts and your planning for them. Don’t write a new draft of the plan every month, but don’t be afraid to tweak the plan when circumstances demand it. It’s probably a good idea to review your business plan once a year and make revisions as needed. At the very least, a business plan review will help keep you thinking about new challenges and opportunities and how best to plan for them.
• Spell out to investors exactly what their money will be used for. Equipment purchases, operations costs during the start-up period, etc.; investors want to know where their money is going.
• Understand the competition and the industry. Do your homework before drawing up your plan. Find out what your competitors’ costs and profit margins are, who their customers are and anything else you can find out about them. The better you understand your industry and your competition, the better that you’ll be able to offer a comprehensive and realistic business plan to lenders and investors.

There are five key elements to a profit model:

Net sales revenue: This is the total number of all the goods and services your business has sold and multiplied by their net sales prices, that is the price of the product minus any discounts, and also minus costs that can be directly linked to the sale of the goods or services. Examples of these costs may include swipe fees charged by banks for processing credit card or bank card purchases, sales commissions paid to employees, etc. The net sales revenue gives a more realistic view of how much revenue you made, as it takes into account the aforementioned costs. By examining this figure, you may be able to identify costs that you can shed to boost revenues.

Product costs: The product costs represent the cost of your products and also includes losses that occurred from write-downs and shrinkage from inventory.

Variable operating costs are costs that depend on the amount of business you’re doing, such as packaging and shipping costs. (When examining product costs and variable operating costs you’ll come up with a figure known as margin. Your margin is your revenue minus product and variable operating costs prior to adjustment for fixed costs.)

Fixed operating costs are locked in costs that occur regularly for your business and do not vary based on business volume. An example of fixed costs would be rent, insurance, employee compensation, accounting fees, etc. Taxes and licenses for vehicles are also fixed costs.

Interest expenses are essentially how much interest you pay each year on the outstanding debt of your business.

Once you have a good grip on your profit model, you can begin considering ways to boost your profits. If you feel your fixed operating costs are too high, you may consider finding a less expensive place of business to rent or right-sizing your workforce or contracting some duties out. If costs are beginning to take a large bite out of your revenues, it may be time to more aggressively push to broaden your customer base or it may be a better idea to raise prices to reflect your increased costs of doing business. If variable operating costs are rising at an uncomfortable rate, you may want to address the increased cost of doing increased business by finding new delivery and packaging options.

The profit model provides a valuable snapshot of your business that you can use to gauge your costs and revenues to determine methods of protecting and increasing your profits. Analyzing and applying the knowledge learned from profit models takes experience, and new business owners may want to find a mentor to help guide them through the process of learning how to read profit models and apply what they’ve learned.

Probably the most important consideration to take into account when starting a small business is financing. If raising the capital you need to start your business will put your home or retirement savings in severe jeopardy, it may be worthwhile to hold off on starting your business until you’re able to find a source of collateral that won’t leave you in the street if things go south.

Loan rates are also an important factor to consider when getting financing for a new small business. If the interest rate on your loan is too high, you may want to wait until your credit improves, you can find a partner or until you can find an alternate source of financing to start your business.

Gauging the demand for your potential business is also important. If the local market for your business is already thoroughly saturated, or if the online niche for your products or services already appears to be filled and you’re unable to offer something different from the existing businesses, you may want to hold off on starting your business.

Compliance with zoning and other regulations is also a key factor to consider when starting a new business. If your new venture is on shaky legal ground concerning zoning laws, state health and safety regulations or other rules, you may want to delay starting a business until you can get a black and white determination of the legality of your venture.

Supply chains are important to businesses in that they determine whether the business will be able to meet its customers’ needs. If you can’t get the logistics of how you’ll get supplied with the materials you need for your business, you may want to wait on starting up until you can find a better solution or better location.

Your personal life also plays a role in whether you’ll be able to successfully start a new business. If you’re going through a divorce, it may not be the time to start a small business, as the legal proceedings could put the status of your investment in your new business in jeopardy. Also, significant health problems or substance abuse issues may need to be resolved before you can put your best foot forward in starting a new business.
Buying an existing business

If you’re considering buying an existing business and making it your own, there are a few red flags that might be worth heeding.

For example, if you’re stepping into the shoes of a partner who is departing a business, it’s worthwhile to look into the history of the partnership and the background of the other partner before buying. A history of contentiousness between partners or evidence of recklessness or negligence by the remaining partner may dissuade you from buying into a bad situation.

Finances are another key factor, if not the most important factor, to consider when buying in to another business. You should evaluate your finances carefully to see whether you have the money to fund renovations or changes that may be necessary and absorb losses in the transition period.

Also, while finding undervalued assets and turning them around is a common aim of many businessmen and women, it’s not always attainable. If you’re considering buying a business that’s had some public image problems or difficulties related to its facilities or logistics, you may want to think twice before making a potentially expensive plunge. Consider the problems of the business you’re acquiring and whether you have the skills, know-how and will to turn them around.

While entrepreneurs shouldn’t be discouraged from taking risks and starting new ventures, it is important to consider the risks of a new venture carefully and determine whether the likelihood of success adequately outweighs the risk of failure when starting a new business.