How to Start a Business Support Service part 2

Startup Costs

One of the most appealing aspects of the business support services industry is its relatively low startup costs. If you have a decent credit rating, you can be ready to start serving clients with virtually no cash out of pocket–although you’ll certainly be on firmer ground if you have some startup capital.

Most of the business support services entrepreneurs we talked with used their own personal savings and equipment they already owned to start their businesses. Because the startup costs are relatively low, you’ll find traditional financing difficult to obtain–banks and other lenders would much rather lend amounts much larger than you’ll need and are likely to be able to qualify for.
What’s Inside
• Introduction
• Target Market
• Startup Costs
• Operations
• Income and Billing
• Marketing
• Resources

Many operators start their businesses on the side while working full-time jobs, so their personal living expenses are covered. But if you plan to plunge into your new business full time from the start, be sure you have enough cash on hand to cover your expenses until the revenue starts coming in. At a minimum, you should have the equivalent of three months’ expenses in a savings account to tap if you need it; you’ll probably sleep better if you have six to 12 months of expenses socked away.

Charlene D. in Winter Park, Florida, decided to invest in a new computer and printer and says she spent about $3,500 on equipment and supplies to get started. Perrysburg, Ohio’s Rachelle Y. used her old 486 PC to develop her business plan and brochure but decided to purchase a new system before she actually began her operation. “I wanted to be able to offer everything I could,” she says. “In this field, your computer is your best friend. So I bought a new computer and printer, paper, and some other odds and ends. I probably spent between $3,000 and $4,000 on startup.”

Irvine, California’s Cindy P. paid $10,000 to buy an existing business; that fee included the client list and the lease on the office, but no furniture or equipment. She spent another $4,000 on initial equipment purchases and has added more over the years.

Joann V. in Chicago started her business before the days of PCs. “Originally, all I needed was a typewriter,” she says. “I bought an electronic typewriter for $500 and some paper, and someone loaned me a transcription unit. That was it–that was all I needed to start.” In Edmond, Oklahoma, Janet S. says that because she already owned a computer, printer and answering machine, her startup costs were “virtually zero.”

As you consider your own situation, don’t pull a startup number out of the air; use your business plan to calculate how much you need to start your ideal operation, and then figure out how much you have. If you have all the cash you need, you’re very fortunate. If you don’t, you need to start playing with the numbers and deciding what you can do without.

Operations

As a solo operator, expect to spend at least one-fourth of your time on general business management and administration, marketing, purchasing and billing. The bigger your business and the more people you have, the more time you’ll spend managing them rather than actually doing the work yourself. With four employees, Irvine, California’s Cindy P. spends very little of her time working on projects for clients. And Chicago entrepreneur Joann V. hasn’t actually transcribed anything herself in years–she has a team of five full-time employees in the office and nearly 50 part-time transcribers who work from their homes.

No matter how small or large your company is, it’s critical that you not neglect the administrative side. It won’t do you much good if you do the work but never get around to sending out the invoices so you can get paid. Poorly maintained records can get you into trouble with the IRS and other government agencies. And if you aren’t marketing on a regular basis, your business will eventually dry up.

What’s Inside
• Introduction
• Target Market
• Startup Costs
• Operations
• Income and Billing
• Marketing
• Resources

Running a business support service takes a lot of energy. It helps if you enjoy people but are also able to work alone or in small groups. You’ll need to be able to juggle several projects at the same time, and always make each client feel as though he or she is the most important person to you.

Location

When it comes to the actual site of your business, you have two choices: homebased or a commercial location. A business support services company can be extremely successful in either venue; your decision will depend on your individual resources and goals.

As you consider the issue of location, keep a few things in mind. Depending on the specific services you offer and market you target, you’ll possibly be dealing both with the general public, who will need access to your office, along with small-business owners and managers in larger corporations who may also want to visit your facility or have their employees or a messenger pick up and deliver work.

In any business, but especially in this one, a professional image is a critical element of success. Homebased operations are very accepted in today’s business world (in fact, many customers prefer dealing with homebased suppliers because they have lower overhead and can therefore charge less), but you still need to present the appearance of being a serious business, even though you choose to work from your house. And if you opt for a commercial location, be sure it’s one that is compatible with your goals.

In the mid-1990s, about half the members of the Association of Business Support Services International (ABSSI) were homebased; by the turn of the century, an estimated 70 percent were homebased, one-person operations. “Many of our previously office-based members are simplifying their lives by moving back to a residential location,” says Lynette M. Smith, ABSSI’s executive director. “They acknowledge that a homebased business is no longer the exception but the norm. In the perception of clients, there no longer is a stigma associated with being homebased.”

While conceding that operating from home can make growth challenging, Smith says, “At home, one cannot expand through the traditional means of hiring employees. However, it’s becoming more realistic to subcontract out work–especially transcription–to others, so there is still significant profit potential to be expected by replicating one’s efforts in this way.”