Starting a business can be a daunting task — there are great rewards, as well as great risks. But as with any gamble, you can tip the odds in your favor.
Here are some pointers for getting started the right way.
Develop a business plan
A solid business plan will be your roadmap to success. Your plan should cover the market for your product or service, including related competition; your ideas for entering the market and differentiating your product; and the costs of getting started, including detailed financial projections and operational considerations.
Your plan should also detail the risks involved in the new venture and how you plan to minimize them. Expect to spend at least 40 hours researching in the library and on the Internet before you begin writing.
Choose the right structure
There are many considerations in choosing a business form. A sole proprietorship is simplest but offers no liability protection. A business entity — a corporation, partnership or limited liability company (LLC) — can offer protection against personal liability. A single-member LLC doesn’t require any special tax filings.
S-corporations, partnerships and LLCs flow through their taxable income or loss to the owners, so if losses are expected in the early years, the owners may enjoy some tax benefits. Speaking with an attorney or tax adviser can help you make the right decision.
Raise the necessary capital
Unless you plan to finance the start-up entirely with your personal savings, you’ll have to sell your idea to relatives, a banker and/or investors willing to inject capital into your venture.
Loan officers and equity investors look for reliable estimates of start-up costs, operating expenses, expected return on investment, monthly cash flow and projected financial statements for at least the first three years of business. They will also want to see what-if scenarios and alternative plans for addressing problems, such as higher cost estimates and changes in the market.
You should also be able to demonstrate your break-even point and when your business will get there. Always leave room for the unexpected.
Establish a banking relationship
A solid banking relationship is a lifeline for good and bad business cycles. A good banker can provide you with a business checking account, merchant banking services and a business credit card, as well as help you take advantage of Small Business Administration (SBA) loans and a line of credit.
Don’t be surprised if your banker asks for personal guarantees on loans. If you don’t believe in your business enough to personally guarantee a business loan, don’t expect your banker to, either.
Getting started
As you execute the business plan, you’ll need to devote time and attention to many small, but important, tasks.
- Obtain necessary business licenses.
- Find and secure physical space.
- Hire employees and establish a basic human resources system and employee manual.
- Select and implement an accounting system.
- Establish necessary computer systems, Internet access and communications services.
- Set up payroll processing.
- Hire professional advisers.
- Obtain the necessary insurance, including property and casualty insurance and commercial liability coverage.
- Negotiate vendor contracts.
If starting a new business were easy, everyone would be successful. The risks are great, but so are the rewards. Detailed planning, help from financial and legal professionals, and good old hard work will go a long way in maximizing your chances at success.
James P. Sacher has more than 25 years of experience in the field of business advisory services and is the partner in charge of Skoda, Minotti & Co.’s Healthcare Consulting Group. Skoda, Minotti & Co. is a broad-based accounting and tax, strategic planning, litigation support, insurance and investment services firm. Reach Sacher at (440) 449-6800 or [email protected].
