How to Start a Business

How to Start a Business What Does It Take? Confidence in your abilities. People who are afraid of failing often don’t even try. You must believe in yourself. Research. You must learn all you can about the type of business you want to own. Planning Don’t just think about a week from now, but a year from now. Calendar Year 2001 Capital Every business needs some start-up money. Starting a new business is not a sure thing. There are risks.  Your business might fail.  You might lose all your money. Is success possible? Yes! People have started out in small businesses and have worked hard to make them grow. To be successful, you must: Choose your goals. • Buy or make things and sell them to customers • Provide services for your customers Why start a business?  Be your own boss.  Earn profits based on your skills.  Make your own decisions You must decide: • What would I like to do with my time? • What can I sell? • What are my talents? • How much time do I have to run a business? • Will my idea work? • What is my competition? • What are my advantages? • Can I give good service? Legal Structure Three types of legal structures are:  Sole Proprietorship  Partnership  Corporation Legal Structure Sole Proprietorship: A company owned by only one person. He gets all the profits and all the losses. Partnership: A company that has two or more owners, who share profits and losses with each other. Corporation: A company owned by shareholders who invest in the company when they buy stock. Some shareholders own more stock than other shareholders. The owners of a corporation receive some of the profits. These are called dividends. Types of Plans • Business Plan • Marketing Plan • Financial Management Plan • Operating Plan Marketing Plan Shows • Type of product. • Market size & location. • Type of advertising. • What price you will charge. Type of Product • What type of product or service can you provide? • What does the customer really want? Market Size & Location Take a survey to determine:  How many customers are in the market?  Where will they shop? Ways to Advertise Advertise through:  Newspapers  Telephone  Mail What Price to Charge?  A price too high will scare away customers.  A price too low will make you lose money. Law of Demand • At low prices, customers will buy many items. • At high prices, they will buy few items. Law of Demand At a price of $8, customers will buy zero units. At a price of $6, they will buy 5 units. Law of Demand At a price of $4, customers will buy 10 units. At a price of $2, they will buy 15 units. Law of Demand Customers will demand 20 units, but only if they don’t have to pay for them. Revenues Revenues ( often called “Sales”) are the amount of money you get when you sell to customers. Revenues = Price x Units If you sell zero units at a price of $8 per unit, you get Zero revenues. Revenues = Price x Units If you sell 5 units at a price of $6 per unit, you get $ 30 revenues. Revenues = Price x Units If you sell 10 units at a price of $4 per unit, you get $ 40 revenues. Revenues = Price x Units But, if you sell 15 units at a price of $2 per unit, you get $30 revenues. Revenues = Price x Units But, if you sell 20 units at a price of $ 0 per unit, you get $ 0 revenues. Revenues = Price x Units Notice the amount of money you will get will depend on how many units customers will buy at what price. Revenues = Price x Units Notice: $8 x 0 = $6 x 5 = $4 x 10 = $2 x 15 = $0 x 20 = $0 $30 $40 $30 $0 Revenues = Price x Units Which combination would give you the most revenues? $8 x 0 units sold? $6 x 5 units sold? $4 x 10 units sold $2 x 15 units sold $0 x 20 units sold Law of Supply The Law of Supply shows what price you, the seller, will be willing to accept. Law of Supply At a price of $0, You won’t sell Any units. You won’t make any money. Law of Supply At a price of $2, You would be willing to sell 5 units to your customers. Law of Supply At a price of $4, you would be willing to sell 10 units to your customers. Law of Supply At a price of $6, you would be willing to sell 15 units to your customers. Law of Supply At a price of $8, You would be willing to sell 20 units to your customers. Law of Supply Under the Law of Supply, the higher the price, the more units you will be willing to sell. Market Price In the Market, buyers and sellers get together to negotiate price and quantity. Market Price When Supply and Demand Curves meet, that indicates the market price and quantity. Market Price At that point customers will buy 10 units at a price of $4 per unit. Market Price At that point sellers will sell10 units at a price of $4 per unit. $8 $6 $4 $2 0 5 10 15 20 Financial Management Plan A Financial Management Plan is very important. Financial Management Plan It shows:  Source of capital.  Operating budget.  How you will pay yourself. Sources of Capital Some ways to get capital are:  Borrow money.  Invest your own money.  Get others to invest with you. Operating Budget An Operating Budget shows:  Expected revenues.  Expected expenses.  Expected profit. Pay Yourself You must pay yourself out of any profits that you earn from your business. Operating Plan An Operating Plan tells you:  Who will manage the business.  How many employees.  How much equipment. The End Owning your own business offers rewards & risks and takes hard work.