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PLANNING FOR SUCCSESS
Planning is a key factor in the success of any business, and conversely, the failure to plan adequately is one of the fastest routes to business failure. There are many considerations that an entrepreneur must decide such as: type of business, legal structure, permits and licenses, market planning, business plan, location, organization management planning, business telephone line, mission statement, and a business checking account. There are many sources of information to help to start a business in an organized way, such as a business plan from the office of Economic Development & Planning located in the County Office Building, or books in that can be found in any library.
The first decision that the entrepreneur must make is what type of business he/she wants to start. The decision should be based on the amount of knowledge and skill that they have in the field that they are considering. The better that they know the industry, the stronger there likelihood they will have a successful business, and the better base they will have for the rest of the decisions that will have to be made in the time to come.
The next important decision in the business planning process is the legal structure of the company. The three legal structures are Sole-proprietorship, Partnership and a Corporation. Each one of these legal structures has its advantages and disadvantages. The different aspects that each legal structure differs are: management control, capital, liability, income taxes, business continuity, and government regulations. The understanding of these different issues is crucial to the decision of which structure is the best one for the entrepreneurs business. Be sure to consult an attorney before making this decision.
In a sole-proprietorship, the owner retains total control of all the decisions that need to be made. The ability to raise capital is limited by the financial resources and the credit worthiness of the individual owner. The owner has the ultimate liability for all the actions and debts of the business. A sole-proprietorship is not a separate taxable entity. The individual owner reports business revenue, expenses and net income (or loss) on his/her individual tax return (form 1040). The business ends with death of owner unless previously sold or transferred. The government has very limited regulations, and few records are legally required. A D.B.A. (Doing Business As) form is available at most office supply stores or at a County Department of Economic Development office, which also requires a small fee. Completed form with notarized signatures must be filed with the County Clerk s Office.
In a partnership, the control is shared by the partners in accordance with the partnership agreement. If there are two partner s the agreement does not have to be fifty-fifty. It can be what ever the two decide on in the beginning. The ability to raise capital is expanded somewhat as partners are able to pool their respective financial resources. Both partners have joint and several liabilities for actions and debts of partnership. The partnership is not a separate taxable entity. An information return (form 1065) must be filled out each year to report partnership activity; however, individual partners report their respective shares of income (or loss) personally. The business ends with death of a partner unless written partnership agreement contains transfer conditions. The government has limited regulation and few records are required. They should have a partnership agreement, which is available at most office supply stores or at the local County Department of Economic Development office. Completed form with all signatures notarized must be filed with the County Clerk s Office. It is advisable to consult a lawyer about a partnership agreement before filing the certificate.
With a corporation, the day-to-day control rests with the hired management team. Ultimately control is vested with the Board of Directors who are influenced through the voting process by the shareholders. The ability to raise capital is potentially greatly expanded because additional shares of stock may be sold. The liability of the individual shareholders for actions and debts of the Corporation is limited to their equity investment. A C Corporation is a separate taxable entity (form 1120 is required to be filled out). An S Corporation is taxed essentially like a partnership. An information return (form 1120s) must be filled out. The business has a perpetual life distinct from that of its owners. The shares of stock are freely transferable. The government treats a Corporation as a separate legal and taxable entity, and extensive record-keeping is required. There are also complex operating regulations to follow (which differ from state to state). Forms to incorporate are available at any office supply store and should be filed with the Secretary of State in Albany (518-474-6200) if planned start up is in New York State.
Licenses and permits are grants of authority from the Federal, State and local political subdivisions to individuals, corporations or partnerships to carry on certain activities. Licenses often involve the payment of fees and proof of qualification by examination. Legally, it is up to you (the business owner) to know if your business requires licensing. Before you start a project, carefully research the applicable state and local laws. For local licenses and permits contact the village/town hall and the county office for local requirements. If you plan to operate a business in your own home, check to make sure you are not in violation of local zoning ordinances. For a construction company the owner or contractor will need to have specific permits and licenses for each job. A call to the County Clerk s office gets you started with local government. Depending on your plans, you may also need to check with your local planning board, zoning board and building inspector. For construction jobs it is advisable that you check with the DOT regional office in the area of the project to determine if any permits may be necessary for your particular job.
There are many occupations in which various governmental agencies and privately owned businesses require the worker to have a license before he/she can work on the project. Each year there will be fewer trades people, contractors, ect., that will need to be licensed. In the years to come it must be expected that all contractors, trades persons, etc. will be required to be licensed by government authority. The majority of cities in the United States require the trades people to be licensed to conduct their business.
As the business owner and the employer it is your responsibility to determine if a licensed operator is required for the job. If a license is required you must assure that only a properly licensed person performs the job. The failure to make sure that the employee has the correct license for the job can result in severe penalties and possible imprisonment. It is generally required that in larger cities workers such as carpenters, plumbers, welders, truck drivers, crane operators, heavy equipment operators, masons, steel erectors, laborers, etc., all have the proper licenses. Some licenses are state issued and are required in order to work any place in the state (crane operators, truck drivers, etc.).
Let s turn now to the issues of marketing.
Marketing may be defined as the planning, pricing, promoting, and placing of your product of service. General construction companies have an unusual marketing problem because they are sometimes hard to categorize, especially if their project tends to be unique, as opposed to products of manufacturers, which tend to be massed produced. Some important questions the owner should ask are exactly the same issues covered in the mission statement:
Who are my customers?
Where are they?
What do they want?
When do they want it?
Why should they buy it from me?
How do I get it to them?
Pricing, for the construction company, relates to how well the project is estimated. After the contractor estimates the cost of the project they must add a fair profit. At this point it is important to know your competition and to determine construction profit margins for your locale. The better you know your competitors the more competitive you will be. The success of the firm can very well be determined by the skill of the estimator. In the competitive bidding market the lowest reasonable bid most often get the contract.
Promoting is the art of selling and can be accomplished in a number of different ways, such as advertising, brochures, direct mailings, and personal contacts. Your decision on the best way to promote your construction company will depend on the type of contract you are competing for and your market. In the construction business competing for the jobs in your market area is done with bids. The two different types of contracts are public bids, or negotiated bids. For public competitive bids pricing is the primary marketing emphasis, and for negotiated bids contacts are most important. Getting to know other contractors in the area is very important for your business. The relationships developed will enhance opportunities for networking which allows small firms to increase their capabilities by pooling knowledge and other resources together. It also allows one to specialize, and limit the size and scope of the business investments required.
For the construction business, placing the product consist of finishing the project on time in accordance with the estimate. The better your construction firm places the product, the better your reputation. This effort is very much dependent on both the skills of the estimator, and skills of the employees and quality / clarity of the contract, and also the management skill of the firm, and will have a strong impact on your ability to obtain contracts in the future.
A good business plan that is updated periodically makes the most powerful financing proposal a small business can have. A logically arranged and reasonably complete business plan is essential for operating and growing a business in well controlled way. A good plan serves your needs for business analysis, provides a financial forecast based on your rational assumptions about the future. Budgeting guidelines, including a working capital budget and a break-even analysis, help determine the amount and kinds of financing most appropriate for your business. A good plan also helps you present your needs to financing sources. Useful and persuasive information about your business is what lenders and investors need to make swift, accurate and helpful decisions.
There are many suggested outlines accessible available. The best are flexible and can be tailored to your own needs. The following is a good example:
Outline of a Business Plan
Cover sheet: Name of business, names of principals, address and phone numbers
Statement of purpose
Table of contents
Section One: The business
A. Description of Business
D. Location of Business
H. Application and Expected Effect of Loan (if needed)
Section Two: Financial Data
A. Source and Applications of Funding
B. Capital Equipment List
C. Balance Sheet
D. Break-Even Analysis
E. Income Projections (Profit and Loss Statements)
1. Three-year summery
2. Detail by month for first year
3. Detail by quarter for first and third years
4. Notes of explanations
F. Cash Flow Projection
1. Detail by month for first year
2. Detail by quarter for second and third years
3. notes of explanation
D. Deviation Analysis
H. Historical Financial Reports for Existing Business
1. Balance sheets for past three years
2. Income statements for past three years
3. Tax returns
Section Three: Supporting Documents
A. Personal resume
B. Personal balance sheets
C. Cost of living budget
D. Credit reports
E. Letters of reference
F. Job descriptions
G. Letters of intent
H. Copies of leases, contracts, legal documents
To summarize there are three key reasons that a begging business owner should go though the trouble of writing a business plan. The first one, is the process of putting a business plan together, including the thought you put in before beginning to write it. This forces you to take an objective, critical, unemotional look at your business project in its entirety. Also your finished business plan is good operating tool which, if used properly will help you manage your business and work effectively towards its success. Furthermore the completed business plan communicates your ideas to others and provides the basis for your financing proposal. As you can see a well thought out business plan can be a very useful tool for your new company.
Let s now look at the issue of location.
Location is a key to help your business to make money. When you first start your business, first try to locate the ideal site, the figure out how close you can come to it. The business owner can get information about specific areas from a local Chamber of Commerce, industrial development commission (they can give you information about tax breaks and financing incentives for business which will employ substantial numbers of people in towns under their commissions), trade sources such as magazines and associations, planning commissions, bankers, and lawyers. For a construction company, the better the owner know the area, the better knowledge he/she will have of where the work is. Also the better that they know the local community people, the more popular they will be when it comes time for work to be done. If you have a good reputation as a competent and courteous professional, the better your potential of being chosen to do the required work.
One should not establish a business in a given location simply because the price is low. Rent and purchase price, are fixed by market forces, and a low price usually reflects desirability. For a construction business this might not be a problem due to the large equipment that the industry requires and the potentially ugly material that sometimes get stored at the business center. The bottom line is that the three most important success factors are said to be location, location and location.
Now lets cut to the heart of success.
Poor management has been identified as the number one killer of small businesses. The key role of management is that it provides leadership and guidance. After establishing goals and objectives for the firm, it then becomes necessary to formulate policies, which are in keeping with those goals, and to communicate those policies to all members of the company. Organization and management planning consists of an operating structure for the company with firm lines of authority, responsibility, and accountability clearly stated. One good way to clearly state this is by distributing organizational charts and job descriptions to all the employee s. A clear outline of a particular employees responsibilities is even more fundamental for the small business because the individual will be forced to assume several functions with correspondingly large demands on their time. The ability to delegate becomes a critical step in management.
The first step in preparing the organizational chart is performing work analysis. A work analysis is the organization and understanding of all the jobs that need to be done within your company. After understanding the vital activities that need to be accomplished, staffing considerations become very important. Being able to hire the best person for the job will help your business grow and become successful. As mentioned earlier, the estimator can be the key person that gets the contracts or not, so letting him/her understand the importance of their position can help you out. The chart is not static, but should be continually updated to reflect growth and change within the company. A principal management role is to keep the companies energy and efforts focused on the long-term goals and objectives. Performance of the company should be evaluated in relation to these goals.
Some of the other smaller but still important details that have to be taken into consideration are a business checking account, business telephone line, and announcements. It is very important to have you business account separate from your personal account. The bank will require a stamped and certified DBA certification or a copy of your corporation papers with your corporate seals affixed. Also it is important to have a business telephone line installed. This will require approximately a $200 deposit to have the line installed. By having a business telephone line you are entitled to a business listing in the yellow pages. Also consider an answering machine or answering service for calls that come in during you absence. It is also helpful to send announcements of your business start-up to the media, potential customers and friends. Starting a business is an extremely complex process that is crucial to its success.
Most of the aspects have been covered in the above, but there are many more little things that may need to be considered depending on the uniqueness of the business. There are many helpful sources, which will help an individual obtain information on how he/she should start their own business plans. The better organized an individual goes into a business start up the better prepared they will be for the many complicated decisions that will arise in the future.
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