Judging from the local classifieds, it seems like a lot of folks who have lost their jobs have decided to start their own businesses. After all, they have years of experience in their industry developing strong and valuable skills. No doubt, some will discover they've always had a successful entrepreneur waiting to get out, but based on the returns I’ve done for clients who “oh by the way, I started a business last year,” I’m concerned that many more will discover that running a business requires a broad skill set that employment doesn’t always develop.
Planning: Many small businesses don’t create a business plan until they’re looking for investors. There’s an adage that “not planning to succeed means you’re planning to fail.” You many not need a formal, written plan, but you probably shouldn’t start a business without being able to answer the following:
What services or products will you offer? For how much? And how much will it cost to produce? It probably seems silly to think that someone would try to make money by providing something at less than their own cost, but it happens. Some new business owners just don’t have the cost/benefit mindset. And even with the right mindset, a new business owner, without a history to draw on, may not anticipate all the costs of a project (mileage seems to get overlooked a lot). Without good record keeping, they may not even realize that they’re losing money until they pull the numbers together for their first year's taxes. And often, (and I dare you to find someone who hasn’t done this at least once:-), they underestimate how much time (or other costs) a project will demand.
While not all franchises and multi-level marketing plans are scams, in general, they tend to emphasize the huge amount of potential revenues (not net income after costs) compared to the “modest” start up costs. This is probably not the best predictor of how much money you’ll be putting in the bank.
Marketing: Once you’ve developed a product or service that you can provide at a profit, you still need to get people to buy it. A marketing plan should answer the following:
Who will you offer your services or product to? Why will someone want to buy it from you? Are you offering something that no one else does? If so, how will you reach and convince people that they need a new product or service? How much will it cost to do so? If you’ll be competing with other business, what makes you special and more appealing than them? Also, research how your industry is doing in this economy – is anyone buying?
Doing it all: Unlike many large companies, small business owners don’t have coworkers to help (or dump stuff on – you know it happens). There’s no production, maintenance, sales, accounting, or delivery staff to handle the aspects of running a business that you aren’t the best at (or just plain don’t like), until you hire them.
Until then, guess who will have to answer the phone, fix the computer, track down the missing delivery, calm the disgruntled customer, write the copy for your new ad, and balance your checkbook. If you don’t have the skills to do any of these things, guess who will find (and pay for) a company to do it for you?
Time management: If you spend all day tracking down a delivery, you won’t get any other work done. Will you be better off paying someone to write your newsletter while you make sales calls or doing it yourself? Until you have staff that can handle crises for you, if you want to take a holiday or vacation (or a long lunch), bring your cell or plan to shut your doors until you get back.
Compliance: Larger companies have people who keep their licenses current (and know which ones they need). Ideally they have people who keep them current on their payroll, sales, property, and income tax filings. It’s up to you to learn the regulations that apply to your business and comply with them (or find someone who can). Fines for failing to obtain a required license can be hefty, and few late payments will cost you more than blowing a tax deadline.
BTW, it’s my understanding (I’m not an attorney) that failing to comply with certain regulations (doing construction contracts over $500 without a general contractors’ license or failing to register a foreign corporation doing business in California are the first two I think of) can cost you your standing to sue. Without standing to sue, you could be denied access to the courts to go after a client who doesn’t pay - or defend yourself against a lawsuit.
After you have a plan, you may find the following steps helpful for your new business:
1) Create a budget, calculate your startup costs, double or triple them, and find the funds. Make sure you have enough funds to cover operational expenses (leases, inventory, etc.) until the business is paying for itself. The last thing you want is to close your doors after investing your time and energy because you run out of cash. I’ve seen it happen – a local boutique recently came and went that had budgeted enough to lease the space and buy inventory, but didn’t have enough left for advertising. Also figure out how you will cover your personal living expenses until your business is making a profit (in some industries, that can be well over a year).
2) Find out what licenses or registration you will need and figure out how to get them (if you don’t have them already). You may find you need:
* A business license from your city, county, and/or state
* A resellers permit (for sales tax)
* A home occupancy permit (if you plan to work from home)
* Occupational licenses, like a commercial drivers license, brokers or contractors license, etc.
3) Cover your assets. Depending on your industry and personal financial situation, you may want to form an entity like a corporation or LLC. There is a lot of information available on the web about the asset protection and tax implications of various entity types, but an attorney and/or tax advisor can advise you about how they will affect your personal situation. You can also consider different types of insurance available to protect your assets from claims and damages.
4) Sell your product or service. Create the tools you will use to let potential clients find and appreciate you (website, flyers, brochures, business cards, print or other media advertising).
5) Provide your product or service. It’s generally cheaper to keep a client than to find one. Once you find clients, make sure you provide products and services that will keep them coming back (unless you’re selling something like funeral services J) and recommending you to their family and friends.
6) Get paid, pay your bills, and keep good records of both. The importance of the first is obvious, but a lot of small business owners hate doing collections – I think because they hate getting collection calls, so they don’t want to be the one making them. The second one, buy keeping your vendors happy and building good credit, will help you have everything you need available when you need it to take care of your clients. The last one will give you good information about how your business is really doing (and can pay off big come tax time).
7) Repeat steps 4-6.