Guest post by Hugh H. Johnston, M.D., the Past Chair of Score of Aiken and a member of the Mill on Park Advisory Council.
The three basic considerations when entertaining starting your own business are:
Viability: is the business likely to succeed? Approximately 90 percent of new businesses fail in the first few years. Proper planning, structuring and utilizing a well- thought-out business plan can enhance your chances of viability. It is strongly recommended that you seek professional help in preparing this document. Volunteer organizations such as SCORE (Score.org, local chapter at 803-641-1111 or Small Business Development Center (SBDC- 803-641-3646), both of which offer free business counseling and are subsidiaries of the Small Business Administration may provide critical assessment of your ideas.
Other resources are professional fee-for-service individuals such as accountants, lawyers, and certified financial planners. No matter which of these you choose, see them early and often to get guidance and avoid the plethora of pitfalls that plague most start-ups.
Financing: The first rule of thumb is to avoid investing more than you can afford to lose.
Individuals utilize IRA’s, home equity loans, savings accounts, credit cards, loans from friends or family members, commercial loans from banks or credit unions, and rarely, grants to start the business. Common misconceptions are that there is “free money” available in the form of grants, or that the government (i.e. the U.S. Small Business Association – sba.gov) loans money. The grants are few and far between. The SBA has some outstanding programs, especially for women, minorities, veterans and others, but these are loan guarantees, and must be processed through usual banking channels. The SBA guaranteed over $200 million in loans in South Carolina in Fiscal Year 2014.
A relatively new program, Microloans, is available through one of the local banks. They require a well-thought-out, professionally mature Business Plan to even start the loan process. Contact Score or the SBDC for programmatic details. The Community Development Improvement Corporation, 803-663-6848, makes loans that are geographically restricted to certain areas of the county deemed needy of business growth.
Another financing option is through outside investors (angel investors) who are individuals desiring to put money in worthwhile and likely-to-succeed businesses. Their return on investment may be partial ownership of the company in the form of stock, option, or warrants to buy the stock at a predetermined price several years hence. By utilizing the angel investors, the entrepreneur gives up part ownership of his/her company for the benefit of having the necessary capital to start or expand the business. South Carolina, as do most states, offers tax benefits to those individuals willing to risk their money in this type of investment.
If you are using loans from individuals (family, friends, etc.), it is imperative to prepare a legally binding document including the amount of the loan, interest, repayment schedule, payoff details, and what happens if the company fails. This way, there can be no confusion as to who said what, and what the verbal agreement was.
Marketing: Although not a financing parameter per se, marketing your product or service is the key to success for small businesses.
An in-depth market analysis of competitors, need for the product, target audience, optimal marketing vehicle, competitive advantage, and cost of effective marketing weigh heavily in determining the likelihood of success. The old adage “if you can’t sell it, don’t make it” applies acutely to the decision making that one goes through in market projections and company viability.
Small businesses are the key to economic recovery and growth in this country. If you elect to go this route for your future, by all means reach out for help in your decision making. Too often family members are the only consultants used, and they may be seriously biased by your enthusiasm or the desire to see you get out of a job that is less than rewarding. Starting a small business is a major commitment of time, resources and energy. Good luck, but get professional help in making the decision before you leap.