By: Alpha Bah
What does it take to start your own business? The answer varies based upon your objective. However, let’s take a look at common concerns that most entrepreneurs and business people face. Fundamentally speaking, every business sells a product or a service. The very first step in opening a new business is to identify a product or service to provide. Of course, every business idea is not brand new. However, there must be something about the product or service that distinguishes it from other products and services in the marketplace.
When selecting the product or service to provide, it is most advantageous that you select something that you are very familiar with. Every new business will run into problems and issues. Each venture has its own learning curve that deserves attention, such as technology concerns and logistics. A business where the owner does not fully understand the consumer, the product, and the industry will have little chance at survival.
Understanding an industry and understanding a market is vital to sustaining your business. Understanding an industry involves taking an appreciation of its history, learning how its items for sale have evolved over time, and understanding what motivates the consumer to make purchases within the industry. Each industry has various factors that you must be aware of. For instance, a restaurant owner should be aware of abnormally dry or wet seasons as that can affect farmers’ crops and inevitably affect the price of their supply of ingredients. You should also be aware of an industry’s barriers to entry, which are the hurdles that one must overcome in order to operate. A common barrier to entry is government regulations. A barrier to entry in the restaurant industry is a food license, which is granted by the local government and is required in order to operate.
There is a wide array of materials and resources that you can use to understand the market and industry in which you intend to operate. A visit to the local library or an online search can inform you of the issues and actions that are necessary to run a successful operation. Each industry has trade organizations that one can look to as a resource. Other available resources include those that are already a part of the industry such as owners, suppliers, attorneys, accountants, and potential customers or buyers. Another strong resource that one can use to understand market forces come by way of observing how a similar public company / major corporation operates. Every publicly traded company is required to release a report (10Q), each quarter, that tells the public how the company is operating and what are the current market forces and issues that the company faces at it seeks growth. This information is accessible through edgar.sec.gov. Also, interning is a plausible means to learn an industry, if it is feasible for your lifestyle.
After arming yourself with a comprehensive understanding of your industry and all of its common forces, as the entrepreneur, you should then create a business plan. Under no circumstances should an entrepreneur or business person pursue a venture without creating a detailed business plan. Doing so is a recipe for disaster. The business plan is essential for business survival. Similar to the U.S. Constitution that tells Congress, the President, and the Judiciary how to operate the country, the business plan tells you how to manage your company. The business plan is a living and breathing document and should evolve as you engage and grow your operations.
Business plans can come in various formats and lengths. However, at a minimum, a business plan should include an operational plan, a marketing/sales strategy, and a financial plan. The operational plan includes all of the activities that are necessary to service the client or produce the product. It should explain supplies or services needed, and also describe the personnel / human capital that is necessary to ensure safe and smooth operations. The marketing / sales strategy describes, in detail, the means that will be utilized to bring in business. It identifies your ideal customer profile, pricing scheme, and means to promote your business. The financial plan illustrates where money will come from and where it will go. It demonstrates where the initial investment and revenues will come from and how much to realistically expect. And, it will also describe what expenses you will have to incur to satisfy your customer, and when you will incur those expenses. Expenses should be categorized by overhead costs and variable costs. Overhead costs are those costs that you will have to incur regardless of whether or not you generate any business at all, i.e. rent, utilities, and payroll. Variable costs are those expenses that you pay based on each individual customer.
A quality business plan has milestones and goals built into it. At all times, the company should be attempting to achieve goal(s) on a specified timeline. Overall, a business plan provides a strategy that the entrepreneur can refer to. It also provides a resource for investors to view and understand your business. But, most importantly, the process of creating a business plan provides a tremendous learning experience for the entrepreneur and allows her/him to view issues that may not otherwise appear on the surface.
When prepared to move forward and begin operations, you should obtain a company entity wherein operations will work through. There are various entity types that a company can use, including sole proprietorship, partnership, corporations (Inc.), or limited liability company (LLC). LLC is the most common route for small businesses because it affords the entrepreneur the ability to separate its business assets and personal assets. In other words, you will only risk the invested capital in the LLC and nothing more. LLC’s also provides flow through taxation where the entrepreneur is only taxed once, which is advantageous over corporations wherein income is taxed twice (at the corporate level and at the dividend level).
After registering your company entity and overcoming any necessary hurdles to begin operations, it is now time to generate business and begin operations. Your business plan should lay out what you will do to generate business in your marketing/sales strategy. And, similarly, with respect to operations, the business plan should lay out all necessary actions it will take to satisfy the customer. Generating business and executing operations should inevitably follow a checklist. Execution should flow seamlessly, so long that significant attention is spent in the planning phase.
During operations, you should keep detailed data. In addition, you should revisit the goals and continuously identify strategies in which to achieve these goals. You should also understand and adapt to new trends as they appear. Doing this requires understanding your competitors and what they are offering. And, it also requires regularly communicating with your consumer base and garnering their opinions. After all, your overall goal is to satisfy them, isn’t it?
In addition to the matters previously discussed, common areas of concern include banking, regulatory compliance, and intellectual property. Banks can provide a source of capital and can play a vital role in managing your company’s cash flow. Moreover, it’s advisable to work with banks that have a demonstrated history of investing in the community in which you plan to operate. When starting your company, it is also advisable to maintain separate accounts for expenses, income, and reserves. Different banks provide different services to help satisfy your needs, including merchant services. Overall, it is advantageous to maintain a positive relationship with your bank. Regulatory compliance deals with maintaining a certain standard or level of operation in order to avoid government sanctions or fines.
Intellectual property involves using the patent, trademark, or copyright system to protect your invention, or name/symbol that consumers use to recognize your business. There are other forms of intellectual property that a business owner can use to protect proprietary information. We will take a deeper look into intellectual property issues in next month’s issue.
Anyone reading this article certainly has the ability and wherewithal to start and maintain a profitable enterprise. Reaching your goal is a function of two key parameters – effective planning and execution. Plan effectively, and enjoy your journey!