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Five of the Biggest Challenges to Starting a Business

It takes more than passion and great ideas to launch a sustainable business. According to the SBA, over 50% of small businesses fail in the first five years. To be successful, an entrepreneur needs a strong sense of the challenges that lay ahead and how to respond to them. Here are the five biggest challenges that even the smartest and most dedicated ones will face when starting a business.

1) Forging an idea into a business opportunity.
No matter how great your idea is; your first challenge is to ensure it can be developed into a real business opportunity. Is there a market need for your idea? Is it unique or are there lots of people out there doing exactly the same thing? Also, be sure your idea has the potential to generate profits or you may be better off as an employee. Finally, find a potential customer who will try your product or service and give you feedback. You should always test a business idea before investing a substantial amount of time and money in it.

2) Choosing the right business entity.
When starting a business, you must decide what form of business entity to establish. The structure your business assumes will determine your limitations, liabilities and the income tax return you will have to file. The most common business entities are the sole proprietorship, partnership, corporation and S corporation. Each has its own advantages and disadvantages. A sole proprietorship can be easier to create and run, but the owner is responsible for all debts in the business. A corporation, on the other hand, offers liability protection, but it is subject to capital gains tax. Your accountant or attorney can help you decide what type of business structure best fits your needs.

3) Creating a sound business plan.
If you fail to plan, you plan to fail. Before spreading your wings and flying solo, make sure you have mapped out the road in front of you. A business plan is a document that identifies the goals of your company and explains how they will be achieved. It is a blueprint for your business and it is an indispensable tool in attracting investors. Preparing a business plan takes time and energy, but it is one of the most important steps in starting a business.

4) Raising capital and managing cash flow.
Unless you have substantial personal savings, chances are you will need to borrow money from an individual or a bank to get your business off the ground. And you will need a strong business plan and good persuasion skills to sell your idea to potential investors. After you’ve ensured the capital, you will face the challenge of managing cash flow, as you may have to pay suppliers before you collect from clients. The key here is to control your costs and not let your expenses grow faster than planned.

5) Wearing many hats.
Unlike a salaried employee, business owners are in charge of the entire day-to-day functions. As an entrepreneur, you are the marketing and sales person, the bookkeeper and the web designer. Wearing many hats can get overwhelming, mostly if you are not strong in some of these areas. So, hire great people and delegate responsibilities. To be successful, you must become an expert at prioritizing tasks and pacing yourself.

These initial challenges can give entrepreneurs the knowledge and confidence needed to survive hard times. As the business grows, there are always going to be bumps along the road. But the more prepared you are, the better chance you will have at launching a new successful business.

Jen Silva writes for ChooseWhat.com and enjoys writing on topics such as how to start a business, topics related to business cards, and online faxing options. Visit Choosewhat.com to view more business advice and online articles relating to starting a business.

 

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Starting Up a Business; Checklist

In today’s economic climate, you may feel like a mad person for thinking about starting your own business. However you are not alone. Many people across the world have grown disillusioned with big business, and during the recession countless people have lost their jobs. Rather than joining the unemployment line, people are looking at opportunities within the emerging industries such as search engine marketing, cloud computing, and social media.

It is difficult to know where to start; you have an idea, but how do you develop it? The following five milestones should help you to get on your way.

Write a Business Plan

Before securing any premises, the first thing you will need to do is write your business plan. This will be a large document, similar to a dissertation. Include an executive summary detailing what your company will be and what it will set out to do. This is important, as many potential investors will judge you on this as it’s the first thing they will see. A description of the business products and services should follow this, and then you can begin to discuss your sales and marketing strategy. It is important to also include a section on the staff you’re planning to recruit, your operations (such as premises and IT systems) and a financial forecast. Having an up to date business plan will encourage people to invest in you, but will also ensure that you know where you are going.

Find Investment

Once you have written your business plan, you will need some finance to back your venture. Governments often provide grants to people looking to start their own business; either do some research online or visit your local citizens advice bureau to find out what is available in your country. You can also consider taking out a business loan, however you must be confident in your ability to pay it back as often these loans are secured against your personal home. If you want to go down a different route, you could present your business plan and pitch to angel investors who may give you money in exchange for a stake in your organisation.

Set up a Legal Structure

Even before naming your business officially, you will need to decide which legal structure you fall under. This will affect the way that you do business; for example the amount of tax you will need to pay, and which records you have to keep. Once you know what structure your organisation will take, whether it’s sole trader or limited partnership, you can then register your company with the government tax office.

Choosing Premises

Once you have the initial paperwork out of the way, you can go about finding and securing premises (unless you plan to work from home). You must ensure that the premises are up to standard for your employees and customers. It is also important to sort out contracts for amenities such as business electricity and broadband. Depending on what your business is, you may need to undergo inspection (for example if you are planning on making and selling food).

Pay Your Taxes

The last thing you want to do is to end up in a white-collar prison due to tax evasion. Once your business is up and running and the profits are coming in, take some time to register online with the tax office. Make sure that your tax and national insurance payments are up to date and that you register for a VAT number if required; if you’re buying and re-selling stock, you will need a VAT number. Likewise if you make more than a certain amount of money per year  (£73,000 in the UK).

Jennifer is a part of the digital blogging team at cashzilla.co.uk who work with a growing number of finance brands. For more information about me, or to keep up to date with the latest in finance news, check out my posts at cashzilla.co.uk or visit my Twitter account, @cashzilla.

 

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