Are you thinking about starting a business in 2019, but don’t know how or even where to begin? 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 is money and reputation. 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?
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 bring experience 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?
A business plan is absolutely essential. What is a business plan?
Start with an executive summary, which is a high-level description of what the business is going to do. Next, you need a business description that lays out the business in detail. Then, comes the market analysis, who is going to be your customer and who is your competition? Next, is organization management. 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 a sales strategy, what type of sales strategy are you going to encompass? And lastly, you need to include funding requirements and financial projections. What kind of funding do you need to start the business and how much do you project to make?
A written plan is critical. 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? 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. 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.
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 are C corporations, which is an Inc. company. You may have heard the term “Cannot pierce the company veil.” 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. For S corporations, 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 called Limited Liability Company (LLC). You can also form a not for profit, but you must be careful with that and make sure you qualify.
The best thing to do is consult with your attorney and accountant to find out which corporation is the best for you. Once you form your corporation, you will need to get a business license, register with the state, and get a bank account.
MARKETING YOUR HEADQUARTERS
Marketing your headquarters is just as important as everything else. An outside office is a good route to go because it projects professionalism. The first year you will be spending a lot of time PROVING you are a real business. One of the best ways to prove this is to have an office. This avoids the dog barking in the background while on the phone. Additionally, it helps you focus. There is no temptation to throw a load of laundry in! An office is also a great place to meet people. You don’t want to constantly have to meet at a coffee shop. Especially today when you are trying to recruit people, you want to convey professionalism.
You don’t need to start off in a fancy office. Some cities offer temporary space. In Chicago, you can get an office for $350-$700 a month that includes 1-3 private offices, a corporate mailing address, a receptionist/company phone #, WIFI, meeting rooms, and a furnished space/kitchen. If a temporary space is not an option in your city, you can also rent a small office. Get inexpensive yet trendy furniture! You can also get a starter internet phone system.
If a physical space is absolutely not in the budget, you can get a “Virtual Office.” You can purchase a virtual office as low as $99/month and it provides you with a corporate address, receptionist, meeting rooms, and calls going out appear to come from your company name.
You NEED professional marketing materials and business cards. It is essential to find a good designer, but it doesn’t have to be expensive as long as the materials look good. You only need the basics to start out. Most of the time you are producing an e-brochure, e-mail template, and a one-page handout to distribute at trade shows and when visiting clients. Do not make these yourself. Even if you are graphically oriented, you shouldn’t spend time doing this. You need to be on the phone making business calls.
Everything you send needs to make a statement and spell “success” with your materials. You need to look like an established company.
You will also need a logo. You may want to get a professional to design your logo that costs a little more. This will make a statement about your company and you will have it for a while. Letterhead is optional. Mostly, you probably aren’t sending a lot of letters, but if you plan to send letters you will need letterhead. You will need a proposal template since you will be sending many proposals to clients. Lastly, you absolutely need a website. If you don’t have a website, you aren’t a legitimate business these days. People want to look you up and if they can’t find you on the internet then it is a red flag. Again, do not make the website yourself. You can always tell if it is a self-made website. Two essential items for your website, is an inquiry form and mobile optimization. Your website must be mobile optimized because everyone is searching on their phone.
Simple questions to ask yourself is who are you selling to? Who else is selling to them? What is your focus? Why should a customer choose you? These are basic questions, but you would be surprised how many small business owners can’t give a good answer to these questions.
E-mail marketing is important; however, it shouldn’t be your main focus. A very low percentage of e-mails actually get opened due to the mass amounts of e-mails everyone receives daily. Cold calling is a favorite of many. It is essential so you must like to cold call. Always leave a message. Many times, people prefer to call back later, however, leaving a message begins to build that relationship. If they are looking for the solution you offer, who will they call? Mailings are also good to add into you marketing mix to send out a couple of times a year. Jumbo postcards mailings are always a good option. There are many professional postcard companies online that will design the postcard and handle distributing it to your mailing addresses. You always want to follow-up with a phone call to get better results. Trade shows are great to attend, but can get expensive. This is a good way though to get your name out there. Social Media is very important these days. If you don’t know anything about social media, take an online course. Many people are on social media so it is a great way to reach those that are on it. Lastly, referrals/networking is extremely important. Once you start to get customers, you will be able to get referrals. And networking is a great way to meet new people. Always attend events that potential clients may be at.
Business owners should know how to sell. The most important thing is to believe in your company and be able to sell the concept. You have to know why your product/service is the best and learn how to sell why it’s the best. At the end of the day, customers are buying “YOU.” In most cases, your product is not one of a kind. You need to convince the customer that “YOU” are the one.
If you are new and a small company, buying from you is a risk. You have to overcome this your first year. Someone will have to be your first customer. How will you prove that you are not a risk? This is something you need to think about and be ready to answer when you are asked. One way to do this, is say if you work with me, I will be handling your account personally. You want to put together a list of benefits that you being a smaller company will be able to offer verse a large company.
Once you get your first customer, you MUST have a contract. Don’t use your uncle’s attorney who specializes in drawing up wills. You need an attorney who knows your business and specializes in it. Steal a contract template from online that depicts your business and says everything it needs to say. Using an attorney to write up a contract from scratch is extremely expensive and most of the time you can get a better one online anyway. In the sales contract, DO NOT concede on important points. How do you know what the important points are? One way is to ask your attorney. What is it on this contract that I should never modify? One item you will find on most standard contracts is if litigation occurs it goes to the seller’s state. You never want to change this in the contract because if something does come up, you will need to hire an attorney in another state and that can get very expensive. Most people know that it goes to the seller’s state, however, some people will want to change this. You never want to mess with your contract without consulting your attorney.
Always remember, do not give away the store. You will always want the business, but it won’t be good if you concede on too many matters. You have to calculate in your business plan and your financial projections what you are going to charge. If you get business that you aren’t going to charge what you need to charge, then you might as well not get it. You need to spend your time on business that will be profitable.
You need to be in both national and local organizations because it gives you instant credibility. Anyone who is part of a national organization knows you get high-level training and gain industry knowledge. Additionally, you learn about legislation. You need to know the laws. Local organizations accomplish the same, but you get local related industry knowledge and legislation. You can also attend local events verse spending money flying somewhere. Joining both national and local organizations are very important for instant credibility.
Eventually, you are going to need to hire employees. You must have an employee agreement. Again, you can grab a template online and run it by your attorney. When you hire someone, you will need to give them a written offer letter, benefits, and an employee agreement.
You will need to figure out how much you will pay your employees and also what benefits you will give them. Being a small business, you may want to give your employees better benefits they can’t get anywhere else so there is an incentive to work for your business. You will also need to figure out working hours and supplies you are going to provide.
Additionally, an employee handbook is essential. You can purchase a corporate handbook template and customize it by filling in the blanks. You want to provide all of your employees a copy on their first day and update it each year. The handbook should provide guidelines on all processes and policies, such as a mission statement, vacation/PTO policies, etc. You never want to be unclear with anything.
What does a good employee profile look like? You need team players and someone who has a passion for the job. You don’t want someone to drag them self in every day. You also want your employees to be determined and dedicated. If you provide your employees with incentives, they will most likely be dedicated.
It is up to YOU to keep your employees motivated. Engaging your employees is important. Talk to them and see what they think about different topics. You also need to align your metrics and have goals for your employees to reach for. Goals help increase employee productivity. It is important to identify and remove internal roadblocks that can harm an employee’s productivity. Training and professional development opportunities are important for your employees. And lastly, you must always remember to focus on your business strategy. You can’t please every market. If a client isn’t the right fit and will cause more stress for everyone at your company, pass the business up.
Probably the most boring thing about owning a business is accounting, payroll, taxes, etc. Unless you like these things of course! Unfortunately, if you don’t, you have to think about these things when owning a business.
For payroll, you can hire an outside payroll company, have your accounting firm do it, or do it yourself through a payroll software. You must file your payroll taxes, otherwise you can go to jail. You also want to make sure you avoid high late penalties. The government will charge you if you are late on anything.
Make sure you send out invoices to customers promptly because the sooner you send them out, the sooner the money comes in. Cashflow is extremely important. You have to stay on top of open invoices, even if your accounting firm is doing your invoices, more then likely they are not going to make collection calls. You will also need to send out a statement of account, which is a document that outlines everything the customer owes. When you send this out, people tend to pay quicker because they see all of the money they owe.
You must pay your bills promptly in order to secure a good credit rating. You want to have a good credit rating because prospects are going to run a D&B on your company. Get rid of credit cards that you do not use because this can also harm your credit score. Additionally, avoid running up credit card debt. Do not get into debt no matter what. It will kill the business and stress you out.
There are two very important documents you must have. One, is a balance sheet (assets & liabilities). Assets are cash in the bank, furniture you might have, etc. Liabilities are accounts payable, outstanding loans, collecting 401K from an employee, etc. Second, is an income statement (revenue/expenses/profit.) This would include what your sales and expenses are. You take what you sold, minus expenses, and that is what your profit is. At the end of the year, that profit gets carried over to your balance sheet and becomes part of your owner equity for the next year.
It is very important to understand your financials. If you don’t, get a book, attend a seminar, etc. You don’t want to rely on your accountant. You have to be cautious of embezzlement when hiring an outside company so it’s key to understand your financials and be able to notice anything that doesn’t look right.
CORPORATE TAX FILING
Never do your corporate tax filing yourself. It is complicated