Importance of a Business plan and Issues with Start-up

Essay by sweetestgracieUniversity, Bachelor'sA+, March 2005

download word file, 5 pages ( 7 KB ) 5.0

Answers obtained from SBA online, Quicken small Business site, and Entreworld.org.

1. What is the purpose of a business plan, and why is it an essential first step for a start-up firm?

A business plan closely describes your business, analyzes your goals, and functions as your business's resume. It helps you designate resources properly, handle unanticipated dilemmas, and make good business choices. The importance of a compendious, cerebral business plan cannot be overemphasized. A lot depends on: outside funding, credit from suppliers, management of your operation and finances, promotion and marketing of your business, and achievement of your goals and objectives. If you are approaching a banker for a loan for a start-up business, your loan officer may recommend a Small Business Administration (SBA) loan, which will necessitate a business plan.

Motives for writing a business plan include: to support a loan application, raise equity funding, define objectives and describe programs to achieve those objectives, create a regular business review and course correction process, define a new business, define agreements between partners, set a value on a business for sale or legal purposes, and evaluate a new product line, promotion, or expansion.

A business plan should confirm that your business will produce sufficient revenue to swathe your expenses, but a business plan may vary depending upon who your audience is. If you are proposing a plan for your colleagues and partners, for example, to swell an existing business, then the focus of that plan may be more operational than financial. A great business plan is the best way to show bankers, venture capitalists, and angel investors that you are worthy of financial support. Make sure that your plan is clear, focused and sensible. Then demonstrate to them that you have the utensils, talent and team to make it happen.

2. What are some of the sources for financing that these websites recommend exploring?

Grants usually support non-profit organizations, intermediary lending institutions, and state and local governments. Most small or growth-stage businesses use limited equity financing. As with debt financing, additional equity often comes from non-professional investors such as friends, relatives, employees, customers, or industry colleagues. The most common source of professional equity funding comes from venture capitalists. There are many sources for debt financing: banks, savings and loans, commercial finance companies, and the U.S. Small Business Administration (SBA) are the most common. Family members, friends, and previous acquaintances are all potential sources. For many small businesses, even a loan from the Small Business Administration seems too large. That's why the SBA started its Microloan Program. The Small Business Administration makes funds available to nonprofit intermediaries which make loans to eligible borrowers. Advances from suppliers work only if you have a contract in hand for your goods or services, but it keeps you away from creditors. Home Equity Loans have tempting interest rates, but if you default on payments, you could lose your home. Loans from friends or family are always good to explore because you don't have to deal with creditors. The down side is that if you don't repay them it can cause big family issues.

3. What are the advantages and disadvantages of different sources of funds?

Venture capitalists are often seen as deep-pocketed financial gurus looking for start-ups in which to invest their money, but they most often prefer three-to-five-year old companies with the prospective to become major regional or national concerns and return higher-than-average profits to their shareholders. Venture capitalists may analyze thousands of possible investments annually, but only invest in a few. Banks have been the major starting place of small business funding. Their fundamental role has been as a short-term lender presenting demand loans, seasonal lines of credit, and single-purpose loans for machinery and equipment. Banks generally have been hesitant to offer long-term loans to small firms. The SBA lending program encourages banks and non-bank lenders to make long-term loans to small firms by dropping their risk and leveraging the funds they have accessible. This ensures that the borrower has an adequate personal interest at stake to give supreme attention to the business. When contemplating an investment opening, most venture capitalists look at the noticeable trends and market functions. Surpassing the business elements, the most important factor in a decision to invest in a company is the quality of the people.

4. Identify and discuss some of the legal issues with which entrepreneurs and small business owners are likely to be faced.

In most states you have to obtain a local business license. Most states that have these make it relatively easy to obtain. Some states may require you to uphold certain standards to obtain the license, and continue to review your compliance with these standards. A Certificate of Occupancy shows that you do occupy a commercial space for your business. This would be obtained from the landlord of your rental space. These will not be hard to obtain as long as you have a landlord and a space. If you own your space rather than renting, you would be required to have your ownership papers available. You may be required to register with the state. This process may be time consuming and more difficult than the local registration. Every business must have a Federal Identification Number. Once you have registered with the state then you should receive your Federal Identification Number. If you have environmental conditions, then you will be required to get an environmental permit. This may be obtained through the local government. Every business has to be inspected by the Health Department. Many issues usually arise at this time. You have to pass a health inspection and then periodically be checked on. If you will have alcoholic beverages in your business, then you will have to deal with Alcoholic Beverage Control. Occupational Safety and Health Administration (OSHA) is a big deal when it comes to opening a business. You have to keep up with their standards or you will be shut down until the standards are met.

5. What are some issues that married couples face in the start-up of a family business?

You must be able to separate family and business issues during the business day. The problem is usually the owner. The owner is the business and their individual personality is the business. When operating a family business many issues come to surface like: death, sickness, legal problems, financial difficulties, delegating power and leadership, keeping the family unit functioning effectively, defining the family's future roles in the business, making sure that there is strong leadership for the future, keeping non-family employees from leaving the company. There are many problems with opening a family owned business and these are just a few. Married couples have problems managing due to decisions of authority. Another issue is in the case of divorce. If you open a business together then you may be required to sell the business or buy out the other party's interest. Joint ownership issues may arise even if the spouse was not involved in the business.