5 things you should know before starting a business.

THERE ARE COUNTLESS opportunities to run into brick walls in the exciting world of entrepreneurship. Small businesses owned by blacks average annual revenues of $52,000 while white-owned businesses average $193,000 annually, according to the latest Census Bureau data. But statistics like these will not daunt you, the true entrepreneur. You know that by avoiding the typical mistakes that can kill a business in its embryonic stages, you'll increase your chances of going the distance.

According to small business consultants like McKinley Howell, assistant regional director of the Rutgers Small Business Development Center (SBDC) in Newark, New Jersey, the top three small business killers are inadequate capital, inability to find clients or customers, and lack of good management skills. Also high on the list are a lack of realism about one's own abilities and not having the right information to work with.

Fortunately, with the Internet at your disposal, you can now get the scoop on everything from which industries and opportunities are hot to where to locate funding sources to how to find (or fire) an employee. In fact, there's so much information available in books, videotapes, seminars, business magazines such as BLACK ENTERPRISE and Web sites that you can find yourself spending too much time on research and consultation and not enough time actually starting your business.

To help protect you from information overload, we've compiled the five most important things you need to know before embarking on your entrepreneurial journey.

1. Know yourself and what you want to accomplish. Ask yourself if you have what it takes to start and operate a business. "Consider whether you like dealing with people, enjoy the intricacies of making or selling the product or service, and get satisfaction from satisfying your customers before going into business," says Ron Blackstone, president of R.J.B. Properties Inc. in Homewood, Illinois, a janitorial, food and security guard service.

Blackstone, who was primarily motivated as a kid to start a business because "I always wanted to be the guy to call the shots," cautions that starting a business can be stressful. "Remember that you're putting your retirement plan, vacation--all the comforts of your life--on the line. It can turn your lifestyle upside down."

Another success factor is having the technical knowledge and business management skills to do a better job than your competitors, says Julius Morgan, coordinator of entrepreneurial development and training at the Milwaukee Enterprise Center.

In fact, entrepreneurs are often called gamblers, which is somewhat of a misnomer. It may appear that they're gambling, but the odds are based on informed instinct and a deep conviction that through their effort they can influence the outcome. This confidence stems from first having proven your management skills elsewhere (e.g., work, community, church), being familiar with the industry you're entering and possessing enough technical know-how to understand what it takes to deliver a superior product or service.

"I use one word to describe the entire process of starting a business--AIM, which stands for Attitude, Innovation and Management," says Edith McCloud, director of the Howard University Small Business Development Center in Washington, D.C. "Attitude is so often overlooked. You should ask yourself if you have not only the skills, but the right attitude about the amount of work, determination and perseverance for the 18-hour days it takes to start and operate a business. It's not something everyone can do."

Innovation refers to infusing creative thinking into your product or service and the way you market it. "You don't have to have a new product, but your marketing strategy should be innovative enough to create a niche," she explains.

The "M" in McCloud's acronym for success refers to management and having the right set of skills to steer the business toward profitability.

To help manage your business, start your entrepreneurial journey with a business plan in hand. This critical document enables others--such as investors, bankers and suppliers--to understand and believe in your dream. It also keeps you focused on your strategic goals and objectives and why you went into business in the first place. (For more on how to put together a business plan, see our series "How to Do an Effective Business Plan," September 1997 to April 1998. Call Circulation at 212-242-8000, ext. 568, to back order.)

2. Know how to find the money you need. As with most start-ups, financing was the biggest problem facing Sandra Jiles, president of UBM Inc., a general contracting and construction management firm in Chicago, and her two partners, Sham Dabadghao and Paul King. "We tried going to a bank first, but without a track record, it was almost impossible to obtain financing," recalls Jiles. "Working with our larger partner [in a multiyear joint venture] and their bank, we were able to negotiate a receivables type of financial arrangement. It was tedious and costly, but it got us over the initial hurdles until we could build a track record and the credibility a bank was looking for." The business, started in 1975, now has revenues of $17 million a year and is loan-free.

In truth, most banks, except those that make SBA-backed loans, shy away from lending money to start-ups. "Banks are not investors and consider a start-up very risky," says Deborah ScottEnsley, president and CEO of Citizens Bank in Nashville, Tennessee. "Any customer needs to realize a bank has no ownership in a business." The bank only wants to get repaid on time every month. If you default on your payments, the bank will call the loan, which could force you into bankruptcy.

ScottEnsley suggests leveraging your own resources before resorting to a bank loan. Try to raise your startup capital from family, friends, churches, credit unions, or income from part-time employment, savings and retirement funds.

While many banks are reluctant to lend you money, you still need a good one On your side for regular banking purposes. Just remember that some are more small business friendly than others.

Small business friendly means the manager of the branch or small business unit will be interested in meeting you and learning more about your business. If so, develop a close relationship with this critical person. As soon as you have established a corporate image (business logo, business card, letterhead and brochure), invite your banker to lunch or meet in the bank office to present your business. Invite him or her to your new office, store or plant (if it looks impressive enough). Keep the banker informed of achievements, major new clients and other positive developments. Building a relationship early will make it easier to access loans and special assistance later.

If your banker is really a nice person, he or she may even alert you to partnering opportunities and refer you to potential clients and customers.

Another way to secure startup capital is to attract the interest of a private equity investor such as a venture capital firm or an angel investor. These are people with funds who are looking to invest in businesses with high earning potential over a relatively short period. If your business fails, they lose; you don't have to pay them back. To guard against such loss, venture capitalists in particular may ask for majority ownership of your company and involve themselves in management decisions. Angel investors tend to attach fewer strings to the deal, but are also looking for a good return on their investment.

The SBA provides lists of financial programs and sources of equity capital online. Check out www.sba.gov/financing for SBA financial programs, the Angel Capital Electronic Network (ACE-Net) at www. sba.gov/advo for equity sources and www.sba.gov/ advo/stats to access a directory of "small business friendly" banks in your state.

3. Know how to register and insure your business properly. Entrepreneurs tend to get annoyed with excessive paperwork and bureaucracy. It slows up the process of making money. But having all of your registrations, certifications, licenses and insurance in place at the start actually makes it easier for you to access opportunities. It also protects you from violations that could eventually shut down your business.

For instance, some communities have zoning restrictions about where you can locate your business and even what types of signs you can hang. Therefore, it's best to go to your town or city zoning office to find out what you need to do. Each municipality differs in licensing and registration requirements, but generally the secretary of state is where you register your business, get your franchise (or any form of business) approved and get incorporated, advises Anthony McMahon, acting district director of the SBA, Chicago.

"Your insurance and papers definitely need to be in order," says Dineo Black, president and owner of Dino's Contracting Service Inc., a residential refurbishing anti rehabbing firm in Milwaukee.

When Black started his business, he went to his mayor's office and asked questions about what it took to successfully operate a contracting business. He walked out of city hall and found his insurance company right across the street.

Ron Blackstone learned about the importance of licenses and insurance when he was a Wendy's franchisee. "I didn't know anything about unemployment insurance and how it worked. I learned the hard way," he recalls. "At the end of the first year, I was paying 2.5% for unemployment insurance. When ! didn't send the forms in, I wound up paying 7.5% for unemployment insurance, which ended up costing me $21,000, money tossed right down the chute. In another instance, I didn't know I had to pay a required driveway tax for each of my three driveways and ended up with a citation. You need to do your research. Go to a noncompetitor and ask what taxes you'll have to pay. If you don't get out there and find out, you may find out in court."

It's also important to buy adequate comprehensive, liability, property, worker's compensation and key person insurance, as well as additional coverage for incidentals, in case your office equipment is damaged by theft, fire or a power outage, says Gregory Goss, chairman and CEO of The Goss Group Inc. in Detroit, which specializes in business property and casualty insurance. "You should also have third-party general liability insurance in case someone slips and falls on your property." Depending on the type of business you have, you also may need professional liability insurance to protect against errors and omissions. If you have a large number of employees, Goss also suggests employment-practices liability insurance in case you're sued for discrimination, wrongful discharge or sexual harassment.

4. Know who your customers are and how to reach them. Don't even try to start a business until you know you have a market for your product or service. And never assume that a good idea is all you need and as soon as you open your doors customers will come rushing in.

One of the most important parts of your business plan is your marketing strategy, showing who your primary and secondary markets are, how you will penetrate each segment, which aspects of your product or service will appeal to each, and what you offer that will pull market snare away from your competitors. If your product or service is unique and will create a totally new market, then describe how you plan to reach that market.

You'll have to do some research to get to the information you need. Conduct surveys or demos at malls and shopping centers to see if people would purchase a product or service such as yours (see our series on Customer Satisfaction, currently running in Enterprise). Invest in building a prototype of your product and show it around to see if anyone would want to buy it. Or give away samples to see how many people come back for more.

Do an analysis of your competitors' sales figures and marketing strategies, gathering data from employees of the company, business and trade journals, and annual reports. Find out from customers what your competitors are doing right and what they're doing wrong, and build your strategy around the opportunities you spot.

James Trotter, president of ACME Muscle Scooters in Milwaukee, built prototypes of his company's new small motorcycle and showed them at bike shows in the United States to determine interest. The bike looks like an American motorcycle but is the size of a large scooter. "We've been getting a great response," says Trotter, who founded tile company in 1.995 with his father. "The market in the U.S. is relatively small but more than large enough for us to be successful. At a recent trade show, distributors from Japan and Australia also were very interested in our product."

With marketing studies done by a consultant, his own research and the names of small bike parts suppliers from as far away as Germany, Italy and Taiwan in his pocket, Trotter is now searching for an investor and optimistically building the first model of the bike to introduce to retail dealerships.

If you need help to determine what's happening in your industry, to do a demographic study or to develop a marketing strategy, visit a Small Business Development Center (SBDC) or Service Corps of Retired Executives (SCORE) consultant, or a business incubator specializing in your industry or do a Web search for sites that provide demographic breakdowns for various geographic areas, markets and industries. If you can afford it, hire a professional marketing consulting firm to conduct a market study for you. The cost ranges from $1,500 to $25,000, depending on the scope of the research.

5. Know where to go for help. One of the first places would-be entrepreneurs should go for help is the Small Business Administration, which offers financial, technical and management assistance through organizations such as SBDCs, SCORE and Business Information Centers. SBDCs, funded by the SBA, the state and sometimes an affiliated business school or community college, can provide you with free business consulting, help you evaluate your business idea, develop a business plan, locate start-up funding sources and even package your business image professionally. SCORE consultants can also give you invaluable advice and counsel.

Call your state Office of Commerce and Economic Development or the U.S. Small Business Administration for the SBDC or SCORE office nearest you, or visit the SBA's Web site at www.sba.gov/.

Also consider joining your local chamber of commerce. Although you have to pay an annual fee, chambers generally offer members access to suppliers and buyers, workshops, listings and profiles in directories and other business-boosting opportunities.

For the ultimate in practical advice, talk to people who actually own or have owned a successful business.

Since entrepreneurs are proud of their accomplishments and experiences and can talk for hours about themselves, keep them focused on the things you really want to know, such as how do they find customers, which banks they use (or avoid using) and the names of good business attorneys or insurance agents. Also ask them to talk about their mistakes and how they handled their problems.

You'll also need to pull together a team of professionals and consultants who can advise you and handle critical tasks throughout each phase of your business start-up--indeed, throughout its lifetime. At the core of your team should be a good business lawyer, accountant, bookkeeper, banker, insurance agent, marketing expert and business planner. Before making any major decisions or changes to your business plan, consult with your management team, and consider the impact any move or change will have oil your overall operation and bottom line.

Be sure to build good relationships with suppliers such as your telephone representative, a computer specialist, an office supply store or two, a quick print shop and a delivery service. Many vendors are happy to take promising young start-ups on as clients and will work with you, even when you hit a few slow spots.

As we said earlier, starting a business isn't easy. But it will be one of the most exhilarating and personally satisfying challenges you'll ever undertake. And remember, it's not only what you know but how skillfully you hone that knowledge into a competitive edge that will determine your success.

RELATED ARTICLE: RESOURCES FOR ENTREPRENEURS

You're never alone on this critical journey. Cruise the Internet, visit a business library and regularly read business publications for information and tips you can use. Meanwhile, here are a few resources to get you started.

Everyday Entrepreneurs (Business By the Book), a collection of advice and profiles of entrepreneurs. Order by calling 612-924-2442.

Bootsrappers' Success Secrets: 151 Tactics for Building Your Business on a Shoestring Budget by Kim Stansell (Career Press, $17.99)

Sister CEO: The Black Woman's Guide to Starting Your Own Business by Cheryl D. Broussard (Viking, $21.95)

Working Solo: The Real Guide to Freedom and Financial Success With Your Own Business by Terri Lonier (John Wiley & Sons, $14.95)

National Association of Home Based Businesses 10451 Mill Run Circle, Ste. 400 Owings Mills, MD 21117 410-363-3698 www.worldhomebiz.com www.usahomebusiness.com

National Black Chamber of Commerce 2000 L. St. NW, Suite 200 Washington, DC 20036 202-416-1622 www.nbcc-e-train.org

National Business Incubation Association 20 E. Circle Dr., Suite 190 Athens, OH 45701 740-593-4331 ww.nbia.org

National Minority Supplier Development Council 15 W. 39th St., 9th Fl. New York, NY 10018 212-944-2430 www.trainingforum.com/ASN/ NMSDC 

Minority Business Development Agency (has regional and district offices across the U.S.) 14th St. & Constitution Ave. NW Washington, DC 20230 202-482-3007 www.mbda.gov

U.S. Small Business Administration 409 Third St. SW Washington, DC 20416 800-8-ASK-SBA www.sba.gov

Service Corps of Retired Executives (SCORE) 409 Third St. SW, 6th Fl. Washington, DC 20024 800-634-0245