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Minggu, 13 Januari 2008

Financing to Start a Business

By. Mary Sullivan

A reader recently asked about obtaining a loan to finance the start of his pastry shop franchise. He is currently training with an existing franchisee to learn the recipes and the business, and he hoped that would help him get a loan to cover the purchase of initial inventory and funds to get him through the early months until the business was self-sustaining. I contacted an experienced commercial banker and asked what weight lenders give various factors when a person applies for this type of business loan. I thought I'd share as a post what I passed on to the reader:

  • Top on his list of criteria is how much of the needed funds the business owner plans to put up personally.
  • Also high priority is the quality of the franchise company -- "There is a wide range of success/failure factors that separate franchises."
  • Planned business location is also a consideration with lenders. "What is the growth trend in that particular neighborhood ... declining, or lots of new construction, etc.? And what is the competitive situation in the proposed location?"
  • Two other considerations are: how well thought-out the business plan is, and of course, prior experience. You won't have had ownership experience, but you're getting good practical operating experience.
The reader followed up, telling me of his excellent credit rating and wondering about the proportion of start-up costs he would need personally and how much the bank would be willing to lend. I replied:
  • Your excellent credit rating counts for a lot. The percentage of total funding a bank will lend you will depend on how strong are your other factors, but another big consideration is economic conditions outside your control. You've probably have heard that the impact of the current mortgage lending crisis has, to some degree, affected commercial lending; the bank where you apply may be more or less affected than another bank due to the make-up of their own loan portfolio.
  • So the answer is, "It depends." Don't hesitate to speak with several banks, and find out what they'd be willing to do for you!

What Really Makes an Entrepreneur

By. Mary Sullivan

Talk abounds on the subject of what it is that makes a successful entrepreneur. The statistics would probably say that more people believe it is that over-worked term "passion". Well, I have known successful entrepreneurs who were very committed to their businesses, but I wouldn't describe them as passionate.

A few days ago, StartUp Nation suggested that the attribute that marks an entrpreneur is "initiative". They gave a good example of someone who is making a success of business through pure initiative. That term is a start, because clearly a person doesn't get a business going without initiative.

My own view is that underlying both "initiative" and "passion" is COMMITMENT. Passion is the desire, and initiative is the impetus to put that desire to work. But without a strong personal commitment, we may give up when the going gets rough -- and yes, I mean when, because it will happen at some point in every startup. So my view is that it is "commitment" that makes an entrepreneur. Not just wanting to operate a business and getting it started, but the focus to follow through on a vision is what really makes an entrepreneur

Do You Have the Right Stuff to Be an Entrepreneur?

What does it take to start a successful business? While there's no such thing as the perfect entrepreneur — even Bill Gates has made mistakes — a number of personal qualities can help you to build a successful business. If you pass muster on most of these traits, you're off and running.

  • You can delegate. No matter how smart and energetic you are, it's a mistake to try to attend to every detail yourself. Unless you're a solo act, you're going to have to trust employees to do their jobs so that you can run the business.
  • You are a teacher. In order to delegate successfully, you will need people with appropriate skills — and they may have to learn some of those skills from you.
  • You are self-motivated. As a small business owner, you won't have a boss to tell you when to get to work. If that's a problem, keep your day job.
  • You can work with numbers. You will spend a fair amount of time keeping track of money — expenses, revenues, taxes and the like. A math phobia won't help.
  • You don't mind making mistakes. You will make them; the trick is to learn from them and move on. Not everyone finds that easy to do.
  • You like to work. Contrary to myth, you don't need to be a workaholic to start a successful business. Many entrepreneurs find that it makes more sense to establish a reasonable working pace — one that lets them strike a balance between work and their personal lives. That said, don't start a business unless you enjoy work. There's going to be plenty of it.
  • You don't mind selling. You'll have to sell products to customers, of course. You may also need to sell lenders or other financial backers on the prospects of your company. And you'll need to convince potential employees to accept jobs with your firm rather than going to work for the competition.
  • You don't quit easily. You'll encounter obstacles that might stymie some individuals. You'll have more success if you are the type of person who relishes such challenges. A dash of optimism helps; it will help you handle the uncertainty that is part of every venture.

What Skills Are Necessary for Starting a Business?

What does it take to successfully start a business? Contrary to popular belief, you don't need to be a workaholic. But you do need to enjoy work because there will be plenty of it. You also need to be a good seller since you will need to sell your products to customers, your ideas to employees, and your dreams to financial backers.

Other traits to cultivate include:

* Self-motivation
* Working well with numbers (expenses, revenues, taxes)
* Not being afraid to make mistakes

In addition, make sure to read these articles:

Evaluating New Business Ideas

For every great business idea there are scores of others that just won't work. You will save yourself a great deal of time, trouble and money if you put your ideas to the test before you try to implement them. Half an hour of careful thought, an afternoon of research, or a phone conversation with a knowledgeable friend might steer you away from a flawed idea — and months of wasted effort and thousands of dollars of losses.

Moreover, the process of testing your ideas will help you determine the kinds of things to take into account when you're creating a business concept. Eventually, your efforts will help lead you to an idea that has a solid chance of success.

Unlike giant corporations that invest huge sums of money to test potential toothpaste flavors or product names, you probably won't have to spend a lot of time or money to evaluate your ideas. If you don't know your target market (see Understanding Your Target Market), however, and haven't done some basic market research (see Market-Research Techniques), chances are you won't succeed.

Begin with these simple steps:

1. Ask your friends and associates to help you evaluate the concept. If you know successful entrepreneurs, ask them what they think of your idea. Chances are, they'll think of problems you are likely to encounter. You may be willing to face those obstacles — or you might decide that some of them are insurmountable.
2. Ask potential customers how much they'd pay for your product or service. Their answers will help you focus on your potential market, and will give you a sense of how strong that market is. Once you have some answers to this question, you can begin to estimate your prospective firm's potential revenues.
3. Consider whether you are excited about the idea. Will you actually enjoy the work that will be required to make your venture a success? If not, move on.

The Feasibility Study: Getting Down to Details

If your initial research and thinking turns up positive results, begin work on a feasibility study. The study can take the form of a formal document that will help you recruit potential partners, investors, or lenders. Alternatively, however, it can be a simple memo to yourself — a series of questions designed to help you decide whether you should proceed to the nextlevel of commitment.

Either way, your feasibility study should address the following issues, each of which will require in-depth consideration:

1. The product or service. What are its unique features? How will it be designed, manufactured, and delivered to customers?
2. The management team. Does your team have experience in the industry? What skills or qualifications are missing from the current team?
3. The market. Who are the target customers? How big is the potential market? Is the market growing? What are the costs required to reach the target market?
4. The competition. Who are your major competitors? Is your product or service superior to the competition? Would it be easy for competitors to duplicate your product or service? What are your competitors' strengths and weaknesses? How will competitors respond when your firm enters their market?
5. The costs. What will it cost to start and run your business? Where will you raise the money?

Fed pledges to act to counter market turmoil

By Steven C. Johnson

NEW YORK (Reuters) - Federal Reserve officials on Friday said falling home prices and financial market turmoil are big risks to the U.S. economy but pledged that the central bank would not shrink from taking bold steps to support growth. At a symposium in New York, Fed Governor Frederic Mishkin said the central bank "has been acting and will continue to act decisively" to counter rapidly deteriorating financial market conditions.

"The disruption in financial markets poses a substantial downside risk to the outlook for economic growth, and adverse economic or financial news has the potential to cause further strains," Mishkin said. His tone echoed that of Fed Chairman Ben Bernanke, who signaled on Thursday that the Fed was ready to cut interest rates in the face of housing and credit crises that Wall Street fears could tip the United States into recession this year.

Financial markets now expect the central bank to cut benchmark borrowing rates by half a percentage point to 3.75 percent at the Fed's January 29-30 policy meeting. A bevy of weak U.S. housing, employment and manufacturing data in recent weeks has sparked fears of recession at many Wall Street firms.

Boston Fed President Eric Rosengren may have bolstered those fears on Friday. In a speech in Vermont, Rosengren traced a gloomy outlook for the economy when he said declining U.S. home prices could fall further this year.

"Since prices have declined substantially even in a relatively benign economic environment, one cannot discount the possibility that they could fall more rapidly should economic performance not remain strong in 2008," he said. In addition, he said the job environment may be weakening. He said a report showing the economy added just 18,000 jobs in December while the jobless rate surged to 5 percent suggested "less welcome developments."

Rosengren, a voting member last year on the central bank's rate-setting Federal Open Market Committee, had cast a dissenting vote in December in favor of a half point cut. The Fed cut rates by a quarter point to 4.25 percent at the meeting. But the Fed finds itself in a difficult situation on both sides of its mandate -- sustaining growth and keeping inflation pressures in check -- because fears of recession are increasing at the same time that energy prices are rising and employment growth is waning.

Mishkin said inflation expectations "appeared to have remained reasonably well anchored." As a result, "easing the stance of policy in response to deteriorating financial conditions seems unlikely to have an adverse impact on the outlook for inflation." He said the U.S. central bank needed to be timely, decisive and flexible at times of economic distress, especially during periods of financial market disruption. Former Chicago Fed President Michael Moskow also said on Friday that the central bank "clearly has to understand that the risks are on the growth side, not the inflation side."

Moskow, who was making his first comments on the economy since retiring from the Fed in August, said he expects "at least another 50 basis points" of rate cuts after whatever action policymakers take in January. In response to questions, Mishkin said it was vital to avoid "importing" inflation through devaluing a currency, which effectively raises the costs for consumers of imported goods. The U.S. dollar has declined sharply in value in recent years, drawing protests from European trade partners while giving U.S. exports a boost.

Starting Up: Budgeting for Small-Biz Travel

By Diana Ransom

WHEN THELMA M. MCCALL recently sought out $35,000 in start-up capital for her patented board game "Shapes and Numbers," she knew she'd also have to secure funding for business travel.

"To get [a company like] Mattel to manufacture the game, I'll need to cover time off and travel fees," says the former middle-school teacherrom Arlington, Va., who plans to take her game on the road to find willing toy manufacturers. "It will generate quite a bit of money as far as royalties are concerned. I just need to get it in front of the right people."

Traveling for business is rarely cheap. And according to the American Express annual Global Business Travel Forecast, prices are going up. The average cost of a domestic trip including airfare, car rental and hotel stay is expected to increase 6% to $1,110 in 2008, up from $1,047 this year. The price for international trips is forecast to advance 7% to $3,171 next year, up from $2,966 in 2007.

Budgeting for travel expenses is particularly burdensome for small businesses, which typically have fewer resources than their larger counterparts. And it's usually the first to go during an economic downturn. But for many budding entrepreneurs, putting in face time with clients and customers is paramount. In-person meetings can help set you apart from more established competitors — and, as in McCall's case, potentially land a lucrative business deal.

With some businesses, says James J. Holtzman, a financial planner at Legend Financial Advisors Inc., in Pittsburgh, "you can't replace the human touch. You have to be able to look people in the eyes."

To get a handle on your travel budget, here's a primer:

The Power of Planning

The more travel dates you can predict in advance the better, says Holtzman. It's easier to budget for expenses you know about. Plus, if you book your travel arrangements a certain number of days in advance, you can usually find discount prices.

It's also a good idea to know how to get around in the city you're visiting. Figure out whether it is smarter to take a cab or jump on a train. Knowing the cab rates in the city you're visiting will help you understand and plan for such costs, says Holtzman. If cab prices are high or if you have far to go, "it might even make sense to hire a limo." That way, he says, "you can get some privacy and the cost differential may be negligible."

Mapping out cheaper places to exchange U.S. currency in advance of foreign travel can also cut down on costs. Or, check out your bank's automated teller machine policy abroad. For example, Bank of America is part of the Global ATM Alliance, which includes eight banks in nine countries including the U.S. and offers customers free access to more than 30,000 ATMs.

Make reservations at restaurants within your price range in advance of your trip. That way you won't have to endure long waiting times or seek more expensive alternatives. Plus, in places such as New York or Chicago, "sometimes you can't get in; if you're trying to entertain a client that can be embarrassing," Holtzman says.

But even if you do plan out your trip, business travel is going to cost you, says Mari Adam, a financial planner in Boca Raton, Fla. After a recent conference in Seattle, in which airfare, a hotel room and registration set her back more than $2,000, she says, "I probably won't do that every month." But, she added, meeting with business contacts and colleagues in similar situations made the trip worth it.

Still, "if youaren't judicious and you spend too much in the beginning, you could run out of money," Adam says. Keep in mind, these types of business-generating strategies don't always pay off right away. It's like a pharmaceutical company investing in research and development: "There can be a long incubation period, in which you might not see evidence of its benefits for some time," she says. With business travel, as with advertising and other marketing costs, "you have to be patient and plan for the long haul," she says.

Business Expense Deductions

According to the Internal Revenue Service, business owners may deduct part or all of the unreimbursed cost of meals, airfare, transportation and hotel stays while traveling. These expenses are usually only deductible if they are deemed to be "ordinary" and "necessary" and your business concerns require you to travel out of town overnight.

"The biggest issue for small businesses is record-keeping," says Bill Fleming, a managing director of private-company services at PricewaterhouseCoopers in Hartford, Conn. At the end of each trip, write purchase descriptions on the back of receipts and staple them to an expense-reporting form, he suggests. If you have employees, develop a policy for substantiating receipts. "Be a real taskmaster about receipts," he says. The good record-keeping will save time, expense and frustration in the event the IRS questions a return. For record-keeping instructions, check out IRS guidelines here .

Travel Rewards

To keep better track of expenses, use a business credit card to buy meals, airline tickets and other costs associated with travel, suggests Greg Rosica, a tax partner in Ernst & Young's Personal Financial Services Practice in Tampa, Fla. "It makes keeping track of purchases easier and more manageable," he says. For more on business credit cards, see our story

If you're planning on doing a fair amount of traveling, look into business credit cards with travel rewards, suggests Holtzman from Legend. For instance, Delta Air Lines, U.S. Airways and United Airlines partner with credit-card companies to offer airlines miles; other cards offer hotel discounts or rebates on gas. For a list of various travel and airline rewards credit cards go to IndexCreditCards.com . Business owners who plan to carry a balance, however, are wise to pick a card with the lowest annual percentage rate, rather than the best travel-rewards program.


Treasury lines up new Rock boss

The Treasury has recruited the former boss of Lloyd's insurance market, Ron Sandler, to lead Northern Rock, should the troubled bank be nationalised.

A decision could be taken within days, says BBC business editor Robert Peston.

According to bankers close to the Rock, the Treasury has a fully developed plan to own and manage the bank, should a commercial solution be impossible. Mr Sandler is widely regarded as having restored confidence in Lloyd's after its years in financial disarray. The BBC has learned that Mr Sandler would become executive chairman of Northern Rock in the event that the troubled bank is fully nationalised. The former boss of Lloyd's of London is well known to Prime Minister Gordon Brown, and worked for the Treasury in developing the so-called stakeholder pension and investment products that were intended to help those on lower incomes save for retirement.

Shareholder meeting

John McFall, Labour MP and chairman of the Treasury select committee, said Mr Sandler was "someone of the highest reputation".

"He has form in that he was parachuted into Lloyds Insurance and, indeed, he was also parachuted in as chief executive of NatWest when there was a hostile takeover. He earned his spurs there and he came out with credibility in the City." The coming week will be a crucial one for Northern Rock. On Tuesday, shareholders will attempt to restrict the ability of the company's board to sell assets without seeking their permission. Robin Ashby, of the Northern Rock Small Shareholders' Group, said he would not welcome nationalisation. "I do hope that we can get a shareholder-led solution and that the extraordinary general meeting on Tuesday will be a step in that process. "There is an executive management ready to come into the company... and I do not see nationalisation as either a sensible solution or indeed one that needs to be done."

The shareholders' action is regarded by the Treasury as potentially hostile to the interests of taxpayers. Taxpayers are exposed to the Rock to the tune of £55bn through direct loans made by the Bank of England and guarantees to other lenders made by the Treasury. A decision will also be taken imminently by the Treasury on whether to pursue a proposal by the investment bank Goldman Sachs to convert up to £15bn of the taxpayer loan into bonds, for sale to international investors. If that proposal to raise new finance for the Rock flops, it is likely to undermine attempts to organise a commercial rescue of the Rock by either a consortium led by Virgin or by the Olivant Group.

Chancellor Alistair Darling says his priority is to secure repayment of taxpayers' money. On Thursday at the Treasury Select Committee, the chancellor made it clear that nationalisation remains a very live option