Making a Strategic Entry into Small Business

Date: Aug 03, 2009
Document Type: Newsletter

In these difficult economic times, potential small business owners can face greater problems and barriers to starting their dream. From raising capital to securing customers, 2009 has been a challenging year. In this context it is important to make the most strategic and practical entry into the small business world.

Small businesses have a high rate of failure. It is particularly important to plan your business venture to increase your likelihood of success. When planning your new business, it is important to seek strategic legal advice as early as possible.

A big decision to make at the outset is whether to start from scratch or to acquire an existing business. Both options have their pros and cons.

With a start up, there are considerable challenges. Significantly, your business will have no previous presence in the market in which you intend to operate. In such circumstances, you should both budget for initial advertising costs and plan for modest sales of your goods or services in the initial months.

On the plus side, if you start your own business it may be easier to control both initial and ongoing operating costs. The costs of incorporation, accounting and general administration can be modest. You can plan to increase your outlays over time.

Alternatively, there may be opportunities to take over the operation of an existing business. This is commonplace in the retail sector. Buying an existing business can be attractive because it comes with an existing customer base, suppliers, staff, equipment and goodwill associated with the name of the business.

Buying an existing business can be accomplished through an asset purchase or a share purchase. A solicitor can provide you with advice as to which option is best suited to your needs.

There will always be some surprise when you buy an existing business, although some risks can be minimised through thorough research and a carefully drafted contract for the business purchase. At this point, the experience of a lawyer who practices in commercial matters can be invaluable. Many new small business owners get in too deep at the start due either to inadequate planning or poor decision making.

Other considerations that should loom large include a review of the commercial lease for the business premises, the taxation of the business, any existing debts of the business and the commercial relationships the business has in place. For example, if the existing business has a supply agreement on favourable terms, you should not simply assume that that contract will continue in its present form after you acquire the business. It can be helpful to talk to a wide range of players in an industry including suppliers and distributors of material.

Running your own business can be an exciting and fulfilling venture but it is most important to realise that you need not go it alone in turning your idea into a reality. Industry contacts and professional advice can ease the way to a new phase of your working life.

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