STOP! Do this BEFORE You Start Your Business

Should I Start a Business?

You may be asking yourself this very question. Instead of trying to answer it, ask yourself the following 12 specific questions:

• How much cash will I have at risk?
• How much time will it consume?
• How much energy will it take?
• Do I currently have other obligations that will prevent me from giving the business 100% of my effort?
• Would there be a much better time for me to start a business other than now?
• What are my alternatives if I don’t start a business now?
• What are the chances of success?
• Am I looking at starting a business from a position of relative strength – feeling good about myself and feeling I am relatively well off – or am I looking at starting a business from a position of relative weakness – recently laid off from a job and being behind on my bills?
• Can I test-run the business part-time before quitting my job?
• Should I choose between a higher-risk or lower-risk businesses?
• Suppose my business provides less income than I expected. How long should I stick with it?
• If the business doesn’t work out, how easily will I be able to pick myself up and move along to the next endeavor?

It should also be noted that part of the answer to the question of if you should start a business depends on your business idea. Small business ideas are not created equal and some of them – restaurants for example – have a higher likelihood to fail. This brings us to our next topic.

Consider the ABCs of Business Before Starting One

Enthusiastic entrepreneurs are often so excited to launch their new venture that they forget to do some important preliminary work that will up their odds of success. Consider the ABCs below.

A – Assess Your Competition

Accept the fact that you will have fierce competition and that it is good. Come to appreciate your competitors since they will help you grow to be a stronger business. No company worth owning is in a non-competitive field.

Study Competitors in Your Industry for a Competitive Edge

In order to beat your competitors, you’ll need to know who they are.

• What are their strengths?
• How can you capitalize on their weaknesses?
• Which customers are they ignoring that you can sell to?
• Are there variations of their products or services you can develop that will be more attractive to buyers?

B – Business Entity Considerations

What type of organization, for legal and tax purposes, will you set up for your new venture? Should you operate as a sole proprietorship DBA Doing Business as, corporation or LLC Limited Liability Company. Ask yourself the following questions and hire a professional attorney and accountant tax adviser to assist you in this crucial first step.

Determination Which Business Structure is Right for You

Not all business structures are created equally. And this means that only a certain type might be right for you.

• Are you going to have employees? How many? Entry level or management?
• What types of “risks” will your firm be exposed to? Product liability? Bodily injury?
• How are you going to protect yourself personally and your family from lawsuits?
• Any partners or owners non-US Citizens?
• How are you financing your business?
• How will you minimize the tax burden on the business owners?
• Do you want to sell your business, or take it public, in the future?
• How will the business function if something should happen to you or another owner?
• Do you want to keep the business within your family as an inheritance of your estate?

Look into limited liability companies (LLCs) or corporations as options.

C – Cash Flow and Contingency

These cash flow essentials will keep your new business continuing to run during economic cycles. No business can keep its doors open without cash, especially fast growing startups. Inadequate cash is amongst the top reasons businesses fail. Save your company the same fate by pre-planning for adequate flow.

Cash Flow Musts for New Small Businesses

Your business will need money to be successful, so consider the following:

• Use Cash Basis accounting which gives you a clear view of the revenues you are spending and receiving in real time.
• Bill first for all orders and ask your customers for either prepayment or payment upon delivery. Only accept credit cards for payments to avoid delays for paper checks to clear – not to mention the possibility of bounced checks written on insufficient funds. Entice buyers to pay upfront with discounts and bonuses.
• Budget your cash flow weekly, study your cash flow statement, and react proactively. Don’t wait until you get into a cash crunch to take action. The time for activities is weeks before you need the money. Your statement should cover at least 60 days. Include all your inflow and outflow of projections. Carefully review and adjust any calculations to get your firm’s true cash position.
• Have a backup plan for all types of issues that could shut your doors, such as negative cash flow, lawsuits, death or illness of owners, trademark infringement, and others.

Weigh the Risks and Rewards

The key question for you might not be, “Am I going to start a business?” Instead, it might be, “Am I going to start a full-time business that will require me to quit my primary job?”

Similarly, let’s say you’ve worked for many years and saved a lot of money and are close to retirement. Now you think you want to start a business. So the key question for you may not be, “Do I want to start a business?” Instead, it may be, “What is the maximum amount of money I am willing to risk on a new business, if any?”

Your initial investment will have an impact on which businesses you can start, but it doesn’t mean that you can’t start a business on a small budget. Check out how to start a business with little to no money.

Starting any business involves risks. And for most businesses, significant risks, as the failure rate for new businesses, is high.

Hard Limits Can Reduce the Fear of Starting a Business

Facing risks makes people fearful. Often, you can reduce the fear and feel better about starting a business if you have firm, hard limits. Limits that you put into your business plan. Consider the following:

• You may decide your hard limit is that you will not start any business that interferes with your day job.
• You may decide your limit is to not invest more than $100,000 in your start-up business.
• You may decide that you will only try a new business for one year, and if you don’t have at least 50 customers and $50,000 in sales after that period, you will shut it down.

So as you can see, deciding whether you should start a business can be complex and require some exploration and thought.

Not Having Specific Limits Can Get You Into Trouble

You might be thinking, “Why should I limit how much money or time I put into my business? I want to think big right off the bat and do everything right and as well as I can.”

Well, that’s the kind of thinking that can get you into trouble. If you are at all anxious about pouring all of your time and money into a business now, imagine how anxious you will be on the days when it looks like the whole show may go south (and almost every business has those days).

That’s why, for many people, the best approach is to start small with specific limits. In fact, you might want to first start a business that you see as just a simple test business, to get your feet wet and build your experience. It will be time well spent.

Plan Ahead

Before you start your business, it is absolutely crucial to have a plan. When you start thinking about your business, even in the very early stages, start creating your business plan. You don’t have to write the whole thing yet! Even just building your business plan outline will help you identify the potential strengths and weaknesses of your future business.

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