Local experts offer business startup advice

She recently went clothes shopping for her 9-year-old daughter, and “had the audacity to buy her a pair of plain jeans,” Dunlap said.

“She wouldn’t wear them, so I told her I would decorate them for her,” she said. “I wondered why no one had come up with this idea, and why it wasn’t out there.”

Dunlap feels ready to jump into business ownership, and she’s not alone. According to U.S. Small Business Administration statistics, nearly 650,000 people launch new businesses each year. Dunlap’s also not alone in that she wasn’t quite sure how to initiate the startup process.

Local experts say there a few key elements for anyone planning a business: drawing on knowledge of others, having proper financial support and understanding legal and demographic issues.

Having a guide

Dunlap’s first stop was the Web site for Score, www.score.org, for advice on how to proceed from a group of retired executives working through the SBA as volunteer counselors. Among the things she learned: the importance of making contacts within the industry to learn from their experiences.

Talking with someone who’s “been there and done that” is a good move, according to Rayanna Anderson, director of the Small Business Development Center at Missouri State University.

“Just like anything you do for a first time, it’s important to have as many different resources as possible to aid in all the different elements,” she said.

“Someone who’s … lived through the issues can help.”

John Fleming, Springfield Score chapter chairman, agreed, noting that having a mentor – or a group of mentors – is extremely helpful to a startup venture.

“We highly recommend having some type of board – not a board in the corporate sense, but an informal support organization,” Fleming said. “You should have … someone you can trust as your attorney, and your certified public accountant. I think it’s really invaluable, having that team that understands your business and can support you moving forward.”

He added that a group of advisers also can help entrepreneurs prepare for unforeseen issues.

“People are usually pretty good at starting their business, but they don’t realize all of the problems and issues that are going to come up one, two or three years down the road,” Fleming said. “That’s where they need help.”

Advisers were a big help for Kurt Fulk, who founded Springfield Orthopaedic and Pedorthic Services in July at 2100 S. Brentwood Blvd., Ste. A. Prior to that, he spent 20 years with another area orthopaedic clinic, which he declined to name. That clinic is now under new ownership, and Fulk felt the time was right to go out on his own.

“I had little to no knowledge of what it took to get the business end up and running,” said Fulk, who sought help from SBDC representatives. “I knew the working end would be no problem. I have 22 years of referral sources and old patients, so I had a ready base of business if I could just get things going.

“But from a business standpoint, I was 100 percent in the dark (for) what was needed.”

Financial planning

Anderson said having business plans in place can help entrepreneurs prepare for the future. (Read more about writing business plans on page 20.)

A common problem is undercapitalization – especially having enough money to meet the business’ initial needs, before it is self-sustaining.

“It’s about understanding that on Day 1, you’re not going to have the level of sales you’ll have a year from then,” Anderson said. “Even if you have a loan, if you’ve miscalculated, going back to whomever financed your business and asking for more working capital is hard – and it’s not where you want to be.”

Financial planning for a new venture is especially difficult, she added, considering there aren’t too many avenues available for startup funds.

The most common sources of funding are banks, acquaintances and personal reserves. (Read more about how banks consider small-business loan applications on page 21).

And contrary to popular belief, there’s not an abundance of grants or free money available for starting businesses.

“It breaks my heart when I talk to people where someone has told them that story,” Anderson said. “I tell them, ‘Please, if you can find that resource, let me know.’ And they never call.”

Fleming said lack of adequate funding is the most common issue, especially for entrepreneurs who don’t have enough of their own money to invest in the project.

“Banks want to know what the pain factor is – if the business goes under, what are you risking? If you’ve taken out a second mortgage, they know you’re committed,” Fleming said. “There are a lot of people who don’t have any money to put toward the business, and they think they can borrow it all. They can’t.”

Fulk had no illusions of free money – he took out a home equity loan to cover more than half of his undisclosed startup costs, with the rest coming from a $45,000 SBA loan.

“I don’t think I knew how much of a personal stake would be needed, but I’m heavily invested in it,” Fulk said. “I’m sitting in my office, but I’m really sitting in my house – or that’s what I tell my wife.”

While Dunlap’s project is still in the early stages, she doesn’t think she’ll need as much startup capital due to the nature of her business.

“I can start more on a small level and build up,” she said. “This is a started-in-my-kitchen project, so it really hasn’t come to needing funding yet.”

Knowing the law

Once money issues are addressed, local experts say one of the next steps should be enlisting an attorney.

First on the list of legal issues is deciding how to organize the business, according to Frank Carnahan of Springfield law firm Carnahan, Evans, Cantwell and Brown.

Options vary from a limited liability company to a general partnership to an S- or C-corporation, and each option carries its own tax and liability considerations.

“Organizations all have to file their own (tax) returns,” Carnahan said. “The question becomes whether or not they pay their own taxes or if the tax flows through to the members or entities.”

He pointed out that a C-corporation would file a return and pay corporate taxes on its income, while LLCs or partnerships could file an income statement and then split the income between the members or partners, making the individuals involved responsible for taxes.

Additional issues, such as taxation of dividends for corporate shareholders, also vary depending on which type of organization is chosen.

Carnahan, like Fleming, said the best way to make an informed decision is to consult an attorney.

Knowing the audience

At this juncture of the entrepreneurial journey, business owners need to make sure they know who their target demographic is, and once again, Anderson points to the business plan, noting that marketing and branding are crucial to the planning process.

“It’s about determining who the customers are, how you differentiate yourself from the competition and what market share you can expect from … your customers,” she said.

For Dunlap, the demographic research is already under way. She also attended a national clothing trade show in Las Vegas earlier this year, where she was able to talk to other people in similar situations and make initial contacts with potential suppliers.

Along with seeking help from Score, Dunlap is preparing a presentation to take to several local stores, hoping they’ll be willing to test market her clothing.

Dunlap has high hopes for her yet-to-be-named clothing line, and she has no doubt about the potential audience for her product – it was what gave her the idea in the first place.

“Some of my daughter’s friends saw what I was doing, and they said, ‘Ooh, if my mom pays you, will you make some of these for me?’” Dunlap said with a laugh. “They went crazy over these pants.”

Are You Ready to Start a Business?

There are several questions entrepreneurs should consider before jumping into business ownership, according to local business leaders and the U.S. Small Business Administration.

–Are you ready to be your own boss?

–Do you have experience in your chosen field?

–Do you have management experience?

–Who will be your potential customers or clients?

–Who will be your competition?

–Have you determined what your startup costs will be?

–Have you lined up a dependable funding source?

–Do you have a strong credit score?

–Are you prepared to temporarily lower your standard of living until your business is firmly established?

–Do you have the necessary licenses and permits to open your business?

–If you need a storefront or commercial space, have you found a location?

–Do you know how to prepare and interpret a balance sheet, income statement and cash flow statement?

–Do you know everything about your competition and how you will “steal” their clients?

–Is your family supportive of you starting this business?

Picking the right spot to open shop takes research

Business has changed through the years, and the Springfield area has grown and become more diversified in its business offerings.

But real estate experts say that when it comes to choosing the right space for a new business, location is still king – at least for retail.

“There are some strip centers and office locations with easier access than others,” said Branson commercial real estate agent Mark Weisz. “You have to look at that. Is traffic backed up in front of the space? Is traffic moving so fast that it’s dangerous to get in and out? For people in retail, the traffic count and the type of traffic going by are critical.”

John Fleming, director of the Springfield Score chapter, said entrepreneurs looking for a space need to look beyond foot traffic.

“They need to research the demographics of their business – competitors, locations, traffic patterns, income levels by ZIP code and by street,” Fleming said. He noted that Score often refers its clients to the business research desk at the Springfield-Greene County Library.

Nonretail businesses, however, can look at other aspects of the space such as affordability and aesthetics.

“If you can do your business with a computer and a phone, and you’re not looking for the walk-by impulse customer, you can find more affordable locations than (state) Highway 76 or Highway 248 in Branson, or Sunshine, Glenstone or Campbell in Springfield,” Weisz said.