Released November 17, 2009
STILLWATER, Okla. – The unemployment rate is floating near the double digits. There is a growing number of people out of work and many are looking to try something new.
According to the Kauffman Foundation, seven percent of individuals who have lost their jobs are launching new ventures. Key in starting that new venture is determining how much it will cost to start, where the funding will come to support start-up and initial operating costs and how you will support your own living costs until the business is financially able to pay you a salary.
So before taking off on your own be sure to get some guidance. The first step to take is to develop a business plan.
Start up costs
Glenn Muske, Oklahoma State University Cooperative Extension interim associate dean, assistant director, family and consumer sciences, said before starting your own business venture think about the start up costs and future expenses. He cautions that it often takes one or more years before a business makes any profit.
Individuals need to consider the alternative sources for funding a start-up business. Rarely are there any grants and loans for a start-up business and they are also difficult to find. Business owners must be prepared to have some financial resources available to put into the business.
Muske said it is also important to start with savings. Strive to have at least three years worth of living expenses above and beyond the startup costs before going into business. It is important to shop for low-cost loans as well.
Other financial resources can include family and friends. Realize though that this can cause conflict if things do not work out the way you have planned. Some people look to credit cards for start-up funding but this is expensive and can have severe impact on one’s credit score.
“Using your severance pay may be a good way to cover start up costs if you have done your homework,” Muske said. “Remember, though, that you’ll need a way to live until the business takes off, if it ever does.”
Muske cautioned against taking out your retirement funds but recognized that many business owners have done just that to get started. If you do take that route, don’t cash in your 401 (k), instead roll it over into an IRA so if cash is needed you can make incremental withdrawals as needed. But if you make withdrawals remember you will pay tax and a 10 percent penalty. Remember though that doing so will severely impact your future retirement funding. Your business plan needs to include the possibility of restoring that funding.
“The Small Business Association loans are a good way to go if you are able to get one, because the current rates are five to 10 percent, depending on how much is borrowed,” he said. “SBA loans come in all sizes, but unless you are launching a big business enterprise, their microlending program is the way to go. These loans go up to $35,000.”
The SBA’s Web site is http://www.sba.gov.
“Many successful American companies got their start during recessions,” Muske said. “To do so, be smart, be brave and, most of all, be frugal. Look at ways to save or to more quickly starting earning money. Be smart with your new venture and hopefully success will follow.”
Another source of information includes your local Extension office. They have educational materials to help you get started and may be offering workshops on financing a business. Also, the Oklahoma Cooperative Extension Service has a helpful Web site with tools, taped Webinars, educational materials, etc. Go online to http://www.eXtension.org/entrepreneurship for additional information.
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Editor: Katie Reim, 405-744-6792, katie.reim@okstate.edu
