Whether out of necessity or due to opportunity, many people are taking the path of entrepreneurship. Job losses and pay cuts have forced people to supplement their household income, with many turning longtime hobbies into money-makers. In other cases, people are turning their dreams into reality and getting plans out of their head and into action.
Starting a business, no matter the reason or the size, is rarely simple, though. There are losses, headaches and unexpected difficulties. To help you avoid common mistakes, we’ve asked Gary B. Roberts and Carlotta D. Roberts to provide this week’s Voice of the Expert blog on starting a business as an “income patch.”
Gary Roberts is professor of management and entrepreneurship in the Coles College of Business at Kennesaw State University. His wife, Carlotta D. Roberts, has a law degree and was area director of the Small Business Development Center at Kennesaw State for 20 years. She is now Business Consultant at The Edge Connection, a not-for-profit micro enterprise development organization.
So, here’s what they say:
In these uncertain economic times, even those who are employed are looking for strategies to supplement their income or have a hedge against the possibility of losing a job. For those who have a viable business idea, starting a “side business” might be just the answer. But what are some important considerations if you are thinking of pursuing this idea?
1. Do a bit of market research. Who are your main competitors? What similar products or services are they selling? How is yours different/better?
Common mistake: Assuming people will buy what you are offering without really testing the market.
2. Put together a budget. Calculate your break-even point. Do a best-case and worst-case scenario. Decide if you can afford to do business under the worst-case scenario. What will it cost to produce your product or service compared with the selling price you propose? Where will you get the initial investment?
Common mistake: Borrowing against 401(k) funds to finance a start-up without having a realistic plan to pay back the funds if the business doesn’t work out.
3. Time constraints. How much time do you realistically have to devote to a “side business” each week/month?
Common mistake: Underestimating how much time a “side business” will actually require.
4. Support. Have you broached the subject of an income-patch business to your spouse, significant other, or family members? Are they in favor of this endeavor?
Common mistake: Anyone who thinks they can be successful without such support should think again.
5. Skill sets. Make a list of the kinds of information and skills you might need to run a small business. Are there areas in which you are weak, such as bookkeeping?
Common mistake: Not utilizing the free- or low-cost assistance that is available to micro entrepreneurs through such local non-profit organizations as the Edge Connection, Inc. or the Small Business Development Centers, which are funded through government grants to provide classes and one-on-one consulting. Contact your local college or university to find the organization nearest you. Don’t be afraid to ask for help.
6. Personnel. Will you need someone besides yourself to run the business? How will you find and compensate employees or contractors?
Common mistake: Using friends or family members who are not qualified simply because you have a relationship with them and they come cheap.
7. Sources of supply. Where will you purchase what you need for the business?
Common mistake: Relying on a single supply source. If demand grows and your source of supply cannot handle the volume, you might not be able to complete orders or projects in a timely fashion.
8. Pick a business that you are passionate about. People generally perform better when they are doing something they enjoy.
Common mistake: Thinking the business will be fun and not hard work.
9. Legal Issues. Form an entity that will protect your personal assets if someone sues and a judgment is rendered against the business. Put business relationships with contractors, suppliers, and customers in writing so that no one can be mistaken about what was agreed on later.
Common mistake: Trusting verbal agreements.
10. Exceptions to the “rules.” Use the above as suggestions and guidelines, but let your good judgment guide you as to when to make exceptions for your business.
Common mistake: Assuming that crossing all the t’s and dotting all the i’s will result in a successful business.
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