Finding Your American Dream

Is the American Dream of owning your own business still alive? Starting a new business can be a difficult challenge, especially in today’s economic environment. According to a study by the U.S. Small Business Association, only two-thirds of all small business startups survive the first two years and less than half make it to four years. With those odds, you need to make sure you’re prepared before you start a new business.

First of all, you need to have a passion for your new business venture. It has to be something that drives you to succeed no matter what the odds. It’s almost like having a child – you give birth to it, you nurture it, you help it grow to be prosperous and successful. You have to be willing to make sacrifices to get the business up and running until it can sustain itself.

But passion is no substitute for a good business plan. No matter how excited you are about building your new business, you have to start with a good foundation. A written business plan is a great way to memorialize your thoughts and ideas and document how you’re going to be successful. You may not see the importance of it, but just putting your plan down on paper can keep you more focused and make it more achievable. Also banks and other potential creditors or investors will most likely require a written business plan before they will partner with you.

A lot of things need to be well thought out and planned, especially financing. A major reason a lot of new businesses fail is insufficient capitalization. It will take some time for your new business to generate positive cash flow, depending on the type of business, and you have to be able to fund your operations until that happens. You can capitalize your business with personal savings, outside investors, borrowing, or a combination of all these. Keep in mind that borrowing is the most troublesome method because it comes with a lot of strings attached, such as defined repayment terms, conditions, and collateral liens. You need to put together several years of realistic income and cash flow projections to plan for your capitalization and financing needs.

Another key to a successful new business start-up is putting together a good team of advisors. Due to the importance of financing and cash flow, having a good relationship with your banker is critical. You also need a good accountant to help you with business formation planning, payroll and payroll tax filings, income tax issues, financial reporting requirements and general business planning. The IRS, state, and local taxing authorities all have payment and reporting requirements, filing deadlines, and regulations that can literally put you out of business if you fail to comply. A good attorney is another person you need on your team. Depending on the type of entity you choose for your business and the legal or regulatory issues relating to your industry, you may need legal assistance to get your business going and keep you in compliance.

As you can see, starting a new business is not for the faint of heart, but it can be one of the most rewarding things you will ever do. America is still one of the only places in the world where a great idea and hard work can take you from rags to riches. The American Dream is still alive.

/Posted by Donnie W. Cox, CPA