INTRODUCTION
Are you thinking about starting a business in 2019, but don’t know how or even where to begin?ย This article outlines the biggest obstacles to overcome, what you need to start your business, and what to do after year one!
THE MYTHS OF STARTING A BUSINESS
When thinking about starting a business you want to think about “Why are you starting the business?” Often times someone decides to start a business with the mindset they will have more free time, work at home, and have a flexible schedule. Unfortunately, it is important to avoid these myths. Majority of the time, starting a business isn’t any of these things. Instead, it is long hours, working at home may be a distraction, less flexibility, and there are many hats to juggle. It’s completely different then working for a company and it is important to keep all of this in mind when deciding if starting a business is right for you. If it is, then let’s dive into getting started with your business idea!
Attitude is EVERYTHING. You need to always keep a cheery attitude. Many things are going to happen during the lifecycle of the company, both good and bad, and the most important thing is to keep a positive attitude.
BIGGEST OBSTACLES TO OVERCOME
The two biggest obstacles startups face when starting a business isย money and reputation.ย You need to make sure you are able to stay afloat and have a means of financing when starting out. And reputation is also an obstacle because you don’t have a reputation or customers. Unless you start out with a group of customers, most of the time you are starting out very alone.
WHAT YOU NEED?
VIABLE PRODUCT
You need to provide a product/service that people want to buy. Researching similar products/services is important to see what else is out there that is similar to your idea and then determine how your product will be better than the competition. It is also important to be able to bringย experienceย to the table. It is the experience you have that will make the company. Typically, you want to have a niche so you can take a focused approach and decide what type of company you want it to be. Lastly, you need to consider if you can sell enough of your product or service to make a living. Will you be able to cover all of the expenses and salaries that come with a business?
BUSINESS PLAN
A business plan is absolutely essential.ย What is a business plan?
Start with anย executive summary, which is a high-level description of what the business is going to do. Next, you need aย business descriptionย that lays out the business in detail. Then, comes theย market analysis,ย who is going to be your customer and who is your competition? Next, isย organization management.ย Who is going to manage the business? Are you going to manage it yourself or are you going to hire someone from the outside to handle your business? Most of the time you are starting off managing the business yourself. Next, you need aย sales strategy, what type of sales strategy are you going to encompass? And lastly, you need to includeย funding requirements and financial projections.ย What kind of funding do you need to start the business and how much do you project to make?
A written plan is critical.ย It is absolutely essential you write down the above information on paper.
There are many business plan templates available to help. Even if you are an established business, you don’t need anything complicated. An additional resource is a simple roadmap. This breaks out month by month projections for 2 years. What trade shows will you attend? How many people will you hire? What type of marketing campaigns will you run?
Last, goals are extremely important. You need to set specific goals in your business plan so you know where you are heading.
MEANS OF FINANCING
How will you finance your business? Some of the key questions to ask are how much money will you need to stay afloat? Will you be taking a salary? What will your non-salary expenses be? How many people do you plan on hiring the first year? What about company benefits? Even if you are by yourself, you will need benefits and insurance. These are all questions you need to think about.
Should you self-finance or take out a loan? Self-financing is often recommended if you have enough money in the bank to float the business and your salary for a year or two. This option reduces the pressure. The last thing you want is pressure from creditors. Loans are going to be difficult to procure. If you manage to get a loan, you will have to personal guarantee and you will need collateral.
There is also the possibility for a financial business partner, however, a financial business partner can often lead to meddling and pressure. It also may cause you to run the business differently then you envisioned. Remember, you are starting the business to put your own spin on it!
A fourth option is a funding company. This is a viable option because they will often do your payroll and invoicing for you. Sometimes the funding company will provide a basic ATS system as well that could help you start off. The downside to a funding company is often it is hard to breakaway. You need to pay off loans with interest and sometimes it isn’t financially feasible to breakaway. If you use a funding company, you want to make sure you understand the agreement and know what it takes to step away from the funding company.
Some additional funding options, are family, small business grants, and crowdfunding/internet. It is really up to your discretion though if this is a good option for you. Small business grants tend to be hard to secure and a lengthy process. Crowdfunding, gives you small amounts of money from a large number of people. It is an unusual option, but could work.
How much should you pay yourself?ย It depends on the industry, but typically your first year’s salary is $34K to $75K. You also have to be prepared to possibly make nothing for a couple of years! It is important to prepare for that. You don’t want to get yourself into a debt situation.
First Year Profits.ย Very few businesses make a profit their first year. It is incredibly important to not get discouraged if this is the case and continue to soldier on. Generally, it takes two to three years for profits to kick in.
COMPANY NAME
Make sure you create a company name that you like and represents the “look & feel” of the business. Avoid using your name, leave that to the law and accounting firms! Sometimes it makes you look small. You always want to make yourself look larger than you are. Lastly, consider a name that begins with an “A” to appear high on lists.
Next, you will need to form a corporation. You can’t just start selling stuff! A good best practice is to get a book and read about the different kinds of corporations. You really need to understand how this works if you are running a business.
You will need an EIN (Employer Identification Number). Then you will need to decide what kind of corporation you want to form. There areย C corporations, which is an Inc. company. You may have heard the termย “Cannot pierce the company veil.”ย That means if you start a C corporation, no one can sue you personally. They have to sue the corporation. Additionally, you file taxes separate from your personal taxes. This is a great option because it allows you to keep your personal and business affairs separate. Forย S corporations,ย this is not the case. Your personal and business tax returns are the same. One advantage to keep in mind, if you want to sell the company there are often tax advantages. If you form a C corporation, it is very difficult and expensive to form a S corporation afterwards. If you don’t plan on keeping the business for a long period of time, forming a S corporation may be a viable option. Additionally, there are corporations calledย Limited Liability Company (LLC). You can also form aย not for profit, but you must be careful with that and make sure you qualify.
The best thing to do isย consult with your attorney and accountant to find out which corporation is the best for you.ย Once you form your corporation, you will need to get a business license, register with the state, and get a bank account.
