The economy is taking its sweet time to recover, and if you've been thinking about starting a new business, you have to be asking yourself if now's the time....
There's no simple answer to this question, but if you have some investment dollars to spend for your future, now would be a good time to place them because as the economy does recover, prices will rise quickly. If you don't have cash to invest, the prospects of borrowing are as dismal as they have ever been. Although Bank of America and other large banks may talk a good game about their interest in lending to small business, the reality is that they are so reticent, they seem to only be lending to customers with which they have had long term relationships.
Smaller banks are, as always, more nimble (if the use of the words banking and nimble in one sentence isn't an oxymoron) and willing to talk to new customers. However, don't be tricked into thinking that their old rule of only lending to companies or individuals with high credit ratings has changed. It hasn't.
Here's a few observations that may help you if you're considering a new business venture:
1. Buying an existing business right now, often makes more sense than starting from scratch. Sellers are ready to get out (they have often weathered a grueling few years, and are tired), sales are down and the last few year's net profit has been poor, so it's hard for sellers to get top dollar.
2. If you do buy an existing business, buy it using future income. In essence, pay for the business by giving the seller a piece of the net profit for the next few years. That means that they have a vested interest in helping you keep the business up and running, and will be helpful on an ongoing basis.
3. Don't fool yourself into thinking you could run the business better than the existing owner. It may be true, but you'll need a concrete plan of action before you start. Don't "wing it".
4. If you need to raise cash for operating capital, look first to the inventory you'll get with the business. It's usually old stuff that hasn't moved, and so see if you can discount the inventory that's obviously old and sell it to get cash.
If you intend to start a business from scratch, make sure you reduce your risk as much as you can. It's a brutal truth, but most, in fact almost all new businesses don't succeed and often that means leaving the entrepreneur with a hefty debt to pay off. Here's a few tips to think about:
1. Don't get into any long term commitments...for example, try to get a month to month lease on your office, if you need one. If not, start at home and stay there until you're bursting at the seams.
2. Lock up your cash and don't spend it. The more you have in reserve, the better the chance that you'll succeed. Oh, and you'll need more cash then you plan for (I usually allow for double my cash requirements projection).
3. Incorporate if you have to take on any debt or liability. Spend the $250 or so it takes to create a corporation and you'll have personal protection if things go wrong. But remember, incorporating won't protect you from the IRS, so pay taxes first and on time.
4. Don't waste money on advertising. Make sure you know that an ad will work before you commit to spending cash. Try new, online marketing as it's cheap, quick and often effective. Once you know what marketing messages work you can feel more confident in spending advertising cash.
Starting or buying a business is a difficult process, but with good planning and a lot of time and energy, it can be the best thing you ever did. Good
 


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