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Starting a business US style

The news

We tend to think that the US is the place to start a small business. This might be the case and indeed many of the 'big names' in global business e.g. Hewlett Packard, did begin as a small business, literally in Mr Hewlett's garage. So, what does the US government give out as advice on how to start a small business? What follows is an edited version of some of their advice.

Small business marketing

  • Discuss the products/services offered by your small business.
  • Identify the customer demand for your small business.
  • Identify the market, for your small business.
  • Explain how your small business will be advertised.
  • Explain the pricing strategy.

Financial management

  • Explain the source of small business start-up capital.
  • Develop a monthly small business-operating budget.
  • Develop an expected monthly cash flow for the small business.
  • Provide projected small business income statements.
  • Discuss your break-even point of your small business.
  • Discuss how you will maintain small business accounting records.
  • Provide approaches to any small business problem that may develop.

Small business operations

  • Explain how the small business will be managed.
  • Discuss hiring procedures for your small business.
  • Discuss insurance and leases relevant to your small business.
  • Account for the equipment necessary to produce your products/services.
  • Account for production and delivery of products and services.

The theory

This US government advice gives some advice for starting a business. This is a complex procedure and involves many activities. Follow the links below for further information on related theoretical topics.

Starting a business

Possible problems faced by start-ups

Businesses are the most vulnerable in the first two or three years following their formation. Indeed, in some developed countries business failures can be over half of business start-ups. Why is the failure rate so high in these early years?

  • Finance is difficult to raise as new businesses have few assets to offer as security or collateral for loans, and banks and other investors view them as high-risk
  • Cash-flow may be an issue because costs are often high in the early months as the business is investing in new assets, such as raw materials and tools and machinery and marketing heavily. The business may be profitable, if they get as far as selling the product. However, if they run out of cash, they cannot afford to pay bills or wages and the products may not be finishes or sold. In addition, new businesses tend to be small and do not possess economies of scale. Entrepreneurs may also lack key financial skills.
  • Lack of brand and company loyalty as it takes time for a business to develop goodwill and a reliable customer base.
  • Poor location may be an issue as the business may not have the funds to afford the high rents charged in premium sites. This is often the reason why many entrepreneurs operate from their homes.
  • Lack of management experience may hamper decision-making and the dream of quick success and wealth may override the need for steady growth.

It is important to note that liquidity problems are the key reason for the early demise of new start-ups, rather than a lack of profitability.

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Setting up a business

The following websites have resources to help any new start-up from marketing to accounts:

Using this website and working in groups of 2 - 5 people, undertake one or more of the following for a new online business set-up:

  • Prepare a booklet containing a 15-point plan to help the online business set-up.
  • Video or record a podcast of an interview with a 'new set up advisor' answering questions on the 'key issues' when setting up your online business.
  • Prepare an article for a newspaper or financial magazine on setting up a new online business.

Split the tasks down between you. For example, allocate roles for researcher(s), interviewer and advisors.

You may also like to read two case studies on two online business set-ups: