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August 10, 2012
Starting a new business is often similar to riding a theme park ride – a mixture of thrills and stomach heaves. And although we’ve all heard stories of a successful business owner starting in their basement with nothing more than $100 and a dream, such results remain a fantasy for the vast majority of people. The reality is that building a successful business takes planning and foresight.
Everyone thinking of starting a new business should take the time to develop a business plan. Think of a business plan as making sure the roller coaster is constructed properly – it does not guarantee a smooth ride, but it certainly provides a much better chance of one. A business plan includes setting a budget, not only for the start up costs, but the anticipated monthly expenses as well. Unless you have a rich aunt who is willing to back you, things may be pretty lean for a while until things get up and running. And although picking a clever name for your business and getting business cards printed can be exciting, that’s not really what it takes to make a business work. That’s just the paint and banners on your ride. Finding good advice, developing a business plan, and figuring out financing is far more important.
Planning for costs and expenses is critical. Statistics show that at least 20% of new businesses don’t survive much longer than a year, and around 40% fail by the fifth. One of the primary reasons for failure is inadequate capital to ride out those initial lean years. However, finding the right financial resources can feel like walking through a house of mirrors.
Using a home equity loan to finance the start up is fairly common, and can offer some advantages, but borrowers need to be aware of the risk. The loan payment will be due every month, whether you are able to generate income from the business or not. Credit cards offer fast and easy access to cash, but too often the growing balance overwhelms the business owner before the business has a chance to build the revenue needed to make the payments. Well-intended debt has been the demise of far too many small business start-ups, many of which could have been avoided by careful planning, adequate capitalization and realistic goals.
The Small Business Administration (SBA) can be a great resource, offering guidance to small businesses. The SBA does not make loans directly, but if you qualify for loan assistance, the SBA will guarantee a loan that you obtain from a bank or credit union. Even though it is only backing up your loan, the SBA also requires collateral, which will usually be your personal guarantee, a security interest in all of the assets of the business, and if that isn’t enough, they may ask you to put up additional collateral, such as a second mortgage on your home. The SBA may also be able to assist you in finding venture capital.
In the Madison area, you may also want to check out the Wisconsin Small Business Development Center, which offers business counseling and education programs through the University of Wisconsin four-year campuses, including UW-Madison. Check out their website for answers to many of the basic questions you may have about starting a business in Wisconsin.
Another great resource is SCORE (Service Corps of Retired Executives), a volunteer, non-profit organization offering mentoring, counseling, workshops and other tools to help small businesses get off the ground. There is a SCORE office right here in Madison that everyone considering starting a business should contact. They offer cost-effective work-shops covering topics such as starting a business from scratch, buying an existing business, accounting basics, and building a website.
You should also develop a relationship with an accountant, whether to do your regular bookkeeping, prepare your taxes, or even just to train you on your business accounting software. By doing things the right way from the start you will save yourself many head-aches (and dollars) down the road.
And of course, having a knowledgeable attorney to guide you is one of the best resources you can develop. The relationship with your attorney can be one of the few reassuring aspects of your business, both in getting it started and as issues come up along the way. Including legal costs as part of your budget will make it easier to seek legal advice when you need it, and preferably before problems arise. It’s just good business sense to do things correctly up front, rather than spend thousands later, trying to undo the effects of a poorly made decision. The attorneys here at Haley Palmersheim, S.C. are ready to assist you in making your business a success, and helping you avoid getting soaked on the raft ride.
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We are a Wisconsin business law firm providing experienced service and representation (and has been for decades) for transactional and commercial litigation issues.
Our attorneys have been consistently recognized by the legal community of Madison and Dane County for their skill and legal knowledge in business law issues. We strive to build a long-lasting relationship with our clients to gain an intricate understanding of your business and be able to provide valuable advice. Our attorneys have been featured in:
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