BUILDING A BUSINESS: NO SURE-FIRE FORMULA EXISTS TO HELP START A BUSINES (FIRST IN A SERIES)

There is no surefire formula for starting a new business.

Consider some facts:

* The failure rate for new start-up business is high -- about 80 percent nationally.

* Small business owners work an average 12 hours a day and 6 days a week on business activities.

* It's normal for small businesses NOT to earn a profit in the first two years.

* Grants to start a for-profit business are virtually nonexistent.

* Loans are out there, but they may be hard to obtain.

In the Cape Girardeau area, as many as 1,500 new businesses have opened over the past decade. On the reverse side, about 1,200 businesses have closed during the same period of time.

But before giving up on the idea of owning your own business, know that some help is available.

The Small Business Development Center (SBDC), on the Southeast Missouri State University campus, offers help to both established businesses and those that are just beginning.

More diverse economy

The goal of the SBDC, says Director Buz Sutherland, is to stimulate diversity and growth in the small business sector of the economy. The SBDC assists new and existing businesses to become more productive and more profitable.

The SBDC, which offers services to manufacturers, wholesalers, retailers and other companies, represents a "Partnership for Economic Development" between Southeast Missouri State University, the U. S. Small Business Administration, Missouri Department of Economic Development, local financial institutions, area utility companies and Southeast Missouri cities.

"We work with a number of groups to provide personalized counseling," said Bill Vickery, training coordinator with the local SBDC. "We also offer some training courses."

"We have counselors who will assist you in developing a marketing plan. We have resources to assist new and existing small businesses to become more productive and more profitable," he said.

Gil Degenhardt is one of a number of counselors providing one-on-one business management counseling. Degenhardt travels to areas throughout Southeast Missouri -- Poplar Bluff, Kennett, Caruthersville, Perryville, Malden, Sikeston and Cape Girardeau -- to provide one-hour sessions with businessmen and potential businessmen.

Questions answered

Volunteers provide management counseling to small-business owners and first-time entrepreneurs through a program called SCORE. The Southeast chapter annually counsels about 50 potential business owners in the region. Jim Buckenmyer, a business professor at the university, is a SCORE volunteer.

Succeeding in small business isn't easy, said Buckenmyer. "Some 80 percent of new small businesses fail within five years, but with smart planning, the success rate improves dramatically. If they do a business plan, the survival rate can be 80 percent."

Small businesses in the United States employ 58 percent of the private work force, provide 47 percent of sales, create 55 percent of new innovations or ideas.

The road to business ownership can lead into three directions.

* You can opt to develop your own concept and start a business from scratch.

* You can buy a franchise.

* You can purchase an existing business.

There are some pros and cons of each road to business ownership, business experts say.

Starting a business

Starting an independent business of your own offers several advantages. You are free from contractual obligations required of franchisees, and from any precedents established by the previous business owner.

You are starting on a fresh, clean slate with total control on how the business is shaped and managed. You are free to offer a new product that could help you dominate your market.

You can start with a bang, or at a slower pace, depending on your resources and goals. There is no required upfront investment that you must raise -- except for the level that you think your business requires to be successfully launched. You can choose the location you want, determine the products and service that you market, and decide whether you need employees or not.

Don't overlook the downside. A new business entails greater risk than buying an established business or franchise. You need to determine whether a need exists for your products or service; and if it does, work to create awareness and branding. The start-up process also means you have to do the groundwork by yourself -- from business licenses and permits, establishing relations with suppliers, and establishing a customer base to support operations.

A new business will require a longer period of time to show profits, if at all. Entrepreneurs who decide on venturing out on their own must be willing to dedicate considerable time and energy to establishing and nurturing the business.

Checking out a franchise

Franchising incorporates the features of both a start-up and an existing operation.

The franchise is the right to sell a product or service. When you purchase a franchise you are basically paying for the right to market an already established product or service owned by somebody else (the franchisor).

Under your franchise agreement, you are expected to market the product or service successfully. This alternative route to business ownership has some distinct advantages. Risk is minimized, since a well-established franchise has a proven business method with established products or services.

Many franchise organizations also provide extensive assistance in terms of marketing, advertising, even managerial support.

Some franchise companies also assist the franchisee in securing financing, while some provide the funding themselves. Franchisees find it easier to convince banks and other lenders to provide loans because franchises are less risky than start-up businesses.

Franchising could present problems to the business owner. At the onset, the high franchise fees required to be paid to the company at the start of the franchise agreement may discourage any prospective business owners. Front fees can range from a few thousand dollars to hundreds of thousands of dollars, depending on the franchise.

In addition to the upfront fees, royalty fees are also required on a monthly basis.

An established business

Buying an existing business offers several pluses worth noting. For one, it reduces the time and cost associated with establishing a new business. Someone else has gotten the company started, and much of the legwork associated with starting out is already completed. The customer base has already been established, and relationships with suppliers have been created. In some cases, you can even continue the status quo once you take over, particularly if the business is doing well.

Some business buyers even employ the former owner either part-time or full-time basis on a limited time to help ease the transition process.

The biggest advantage to buying a firm is that the business already has a proven track record. As a result, you may have an easier time in securing financing.

However, you should be aware of some of the common pitfalls in buying an existing operation. For one, the cost may be too high compared to starting a business from scratch as a result of inflated estimates of worth. Customer relations may not be all that good, and relationships with suppliers might be in bad shape.