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Starting a Business: Factors, Procedures & Issues

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  • 0:00 Starting Your Own Business
  • 1:01 Factors to Consider
  • 2:09 Procedures
  • 3:13 Potential Issues
  • 4:08 Lesson Summary
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Lesson Transcript
Instructor: Dr. Douglas Hawks

Douglas has two master's degrees (MPA & MBA) and a PhD in Higher Education Administration.

Starting your own business might be a dream come true, or it could turn in to a series of 100-hour work weeks. In this lesson, we'll discuss influential factors, procedures and issues you'll need to consider when starting a new business.

Starting Your Own Business

Small business and entrepreneurs account for almost 50% of the gross domestic product (GDP) in the United States. Owning your own business has many advantages, such as the opportunity to be your own boss, contribute to your local economy and earn a living doing what you love. But as any successful entrepreneur can tell you, starting your own business can be challenging. For example, you'll have to establish your company as a legal entity, develop policies and procedures and set up a special bank account; you might even have to hire a few people.

In addition to your start-up ideas and objectives, you should address these challenges in a business plan. A business plan is a written document that describes the mission, need or opportunity your company will meet and how you'll fund and organize it. It also includes an analysis of your competition and potential markets, as well as any other factors you anticipate affecting your success. Let's take a look at a few of these factors before they become roadblocks getting in the way of your dream.

Factors to Consider

Sometimes, a new business fails because its founder believes and want his company to exist so badly, that he never considers whether the current market can support it. For example, say you decide to open your own gym and personal training service in a small town with a predominantly aging population. You might later find out that you completely overestimated the demand for your business.

Although projecting demand isn't an exact science, a little research can go a long way in helping you determine if your business idea is a valid and viable one. For instance, you could visit your local Better Business Bureau's website and find out if there are any other gym and personal training services in the area, and if not, why? You could also conduct surveys among potential clients. Additionally, the federal government sponsors the Small Business Administration (SBA), an indispensible resource that helps entrepreneurs start and grow small businesses throughout the country.

In starting your business, you'll also have to consider some personal factors. As your own boss, the bottom line is all on you. Some lenders might be extra careful or even reluctant when it comes to loaning you money. The Internal Revenue Service (IRS) will also expect you to keep scrupulous records to support your tax returns.

Procedures

One of the first and most important steps in starting a small business is deciding how to structure it as a legal entity. For instance, it might take the form of a corporation, limited-liability corporation, limited-liability partnership or sole proprietorship. Please note that your state of residence has no bearing on which option you eventually choose.

Each entity has its own strengths and weaknesses, so you might want to get some advice from a lawyer. He or she can also help you fill out the paperwork correctly. Your choice of legal entity determines your personal liability, as well as how you can solicit investments. That's why it's such an important decision.

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