Those considering being an entrepreneur should have enough money to start up or purchase a business, to finance the ongoing operation of the business, and to set aside some money to live on. The business concept must be translated into a financial projection that helps the entrepreneur determine if the opportunity makes financial sense and is worth pursuing. It is important that a projected financial statement be based on estimates that are educated guesses based on logical assumptions.
Business owners must find a source of financing — their own funds or those of investors. Usually, entrepreneurs who use only their own funds typically under-capitalize their businesses, leading to business failure. Other investors will want entrepreneurs to invest some of their own money; however, many business models of start-up businesses are not large enough in scope to attract investors or venture capitalists. Consequently, many entrepreneurs tap their friends, family, and acquaintances for funding, which could put their relationships at risk in case of business failure. As a business grows, the owner is constantly fund-raising to grow the equity of the company and expand its capabilities. Likewise, financial statements must be continually evaluated to ensure the business is providing a return on investment.
Entrepreneurs now face unprecedented levels of competition and have to deal with many issues:
*No longer can the novelty of a business carry it to success. New products must compete for attention and money from customers of many existing products.
*Businesses must innovate at lightning speed to stay ahead of competitors.
*Big companies with more resources often target the same niche markets sought by smaller start-up companies.
*Poorly performing competitors can ruin market opportunities by turning potential customers away from using the products or services offered in that market segment.
*Markets move and change quickly, especially in the technology industry.
*It has become more difficult to find and attract the attention of customers in a fiercely competitive market.
*With the onset of the Internet and Web-based shopping, it is more difficult for customers to find a business and its products, unless the business has a very specific product brand and a narrowly targeted customer base.
It seems counter-intuitive, but typically smarter, motivated, and talented people have more difficulty running a business. The smartest people are better at doing almost any task, so they attempt to do everything themselves, instead of letting someone else do the job with less efficiency or quality. Thus, they get straddled with a one-person “job-business” without a way to grow. People who know how to delegate and surround themselves with smart people who they can get to do the needed tasks are those who are most suited to being entrepreneurs. Smarter people also have many more opportunities open to them, so when they start a business they often risk more, because the business must provide a much more significant reward to compete with other possibilities for earning money.
Some entrepreneurs think they can avoid the hassles and risks of starting a business by buying an existing business. However, business owners usually do not sell their businesses when they are performing well, so buyers are usually getting a business that has problems or will soon have them. Potential buyers can never obtain all the information they need to make a good choice about buying a business. Buying a business is not a short-cut to entrepreneurship. The hard work of running a business continues after the sale.
At one time, a business started by an entrepreneurial family member ensured jobs and a specific life style for the whole family. Younger generations were the obvious choices for carrying on the business. Nowadays, children have many more opportunities, they receive higher levels of education, and many service-oriented firms offer high-paying career paths. The family business is not always as interesting. If the young person is not passionate about the family business, he or she is likely to fail as an entrepreneur in that business. Instead of trying to force their passions for a particular business on the next generation, parents can better guarantee the financial success of their children by gaining the most value from selling the company and letting their children invest the proceeds.
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