If you are new to starting business and haven’t a clue as to where to start you are not alone. About a year ago my wife told me she was going to start a small craft business and wanted some direction of what to do. I sat down with her and came up with a list of ten steps she needed to take to determine if she really wanted to start the business and second how to get it off the ground.
The first step is to determine your passion level. One of the key indicators for investors when deciding if they are going to invest in a business is whether or not the entrepreneur is passionate about their idea. How do you measure the passion? It’s not an exact science. However, I will tell you that you should allow a few weeks after coming up with an idea before acting on it. Rushing into a business venture is never a good idea. Look at it as you would a marriage. Don’t present a ring on the first date. The other thing to consider when it comes to passion is the amount of work involved in running a business as oppose to just the business itself. If you dread having to deal with human resource issues, paperwork, bookkeeping, legal issues, etc. you may not be ready.
Second, put your idea on paper. The SBA recently came out with a statistic that business owners are six times more likely to be successful if they have a written business plan. Although a professionally written business plan is key it isn’t everything. You need to first write the plan, develop financial statements and pro-formas with projections of the amount of money you can make with the business as well, then develop the action plan. The action plan is step-by-step instructions on how to implement your plan. Without the action plan you will be like the majority of entrepreneurs who fail in business. Number one because there was no plan and number two because they didn’t act upon the plan. I have seen business owners spend $25,000 for a business plan that just sat on a shelf when it was complete. If you don’t take steps to write a good plan and develop the action plan around it you will be headed down the road of “closed for good”.
Third, put together a team of individuals to work with you and mentor you on starting and growing your business. Don’t go it alone. There are entrepreneurs that would love to help another entrepreneur starting their first business. Find individuals that have started and grown their own companies. Find individuals with expertise in certain areas such as legal issues, tax planning, marketing, sales, etc. You aren’t supposed to know it all. You just need to know who to talk to and where to go for advice and mentorship when you need it most. The best athletes in the world have a team of individuals that support them. There’s a reason for it, to make them better and push them beyond their comfort zone. It’s when we are out of our comfort zone that we grow.
Fourth, determine your entity. How are you going to operate the business, as a sole proprietorship, partnership, corporation or LLC? You should consult with another entrepreneur or professional that can give you some direction to which entity is best for you. In most cases I would always recommend either a corporation or LLC for a business start-up. Very rarely would I tell someone to operate the business as a sole-proprietorship or partnership. There are so many advantages to having a corporation or LLC that it doesn’t make sense to set up your business any other way. The asset protection advantage is the most important benefit for running as a corporate entity and shouldn’t be overlooked.
Fifth, get the proper funding. Look at your projections and for the amount of money you need and then multiply that by three and you will be about where you will need to be. The majority of entrepreneurs who write out projections for their expenses in starting a business use the words “conservative” way too frequently. They will say “I am very conservative in the numbers” or “my projections are very conservative”. The fact is that most people starting a business for the first time don’t have any idea what expenses will come up, so it’s best to take your projections and multiply by three. Once you have that number you need to make sure you have the funding to cover it. You may not need all the money in a bank account but at least have access to the funds. There are three ways to get the money: Personal savings, Credit and/or Equity Financing. You can dip into your personal savings and use that to fund the business. You can obtain credit lines, loans or use credit cards to fund the business. You can also sell equity in your company by finding investors willing to pay to be apart of your idea. You will likely find that at some stage of your business you will use all three.
Sixth, research. Make sure you research as much as you can about running a small business. Read, read, read. There are three books I would highly recommend. “E-Myth by Michael Gerber” “Good to Great by Jim Collins” and “Think and Grow Rich by Napoleon Hill”. You must become a student of entreprenuership if you plan to stay in business long term.
Seventh, get the proper licenses. Call your state, county and city and ask which license you need for the type of business you are operating. Some agencies don’t require a license, but I would do everything you can to get at least one. Investors and credit grantors like to do business with companies that have a license. You also need to look at any type of permits you may need for the business as well. Some business need occupancy permits, health permits, etc.
The eighth step is to work on your message and marketing. Develop a good marketing message and avenues you plan to market your business. I have seen too many business start-up and close in a matter of months only because they didn’t set out a plan for marketing or had a very poor marketing message. I would recommend having a really good copy-writer on your team and ask them to work on the content of your message and marketing materials. They will more than pay for themselves if you have a good one. In addition, make sure you use more than one source of marketing/promotion. Don’t rely on just one newspaper, website or radio ad to generate all your customers. Businesses with multiple sources of marketing and revenue are able to sustain the business long term and not have as bid of ups and downs.
Ninth, test. Test your marketing, your product, your service. Test everything. Just because you start your business and use one method for delivering your product doesn’t make it the most efficient or cost-effective. I have worked with business owners and asked why they spend so much money on a certain part of their business and the answer typically is “That’s the way we have always done it”. I suggest every time to test something else and see if that will work just as well. By testing you not only see what works but you also know what doesn’t work. Sometimes it’s better to know what doesn’t work than it is to know what does.
Last, take action. Your business doesn’t have a chance unless you take action and start to implement your plan. Your action plan will determine your direction and where you need to focus your time. Entrepreneurs have the tendency to get distracted quickly. By having a plan you have a guide map that will let you know when you fall of course.
David Gass
President/Founder
Business Credit Services, Inc.
