Starting a new business can be an exciting adventure if you do some thinking and planning before you take the leap. While you might have an idea, skills and experience, asking yourself questions and putting your thoughts on paper will help you sharpen your focus and avoid the mistakes many people make in starting a business.
Why are you starting a business?
How you answer this question will impact many of your actions. If you are working for someone else, you might think you can deliver similar products or services better on your own. If this is the case, how much do you want or need to get from the business each year? If you want to replace your current income, you will need to bring in substantially more money to cover business expenses. Also, think about how much income you want to generate from the business in future, such as in the first, third and fifth years of operation.
If you want flexibility, remember that running a business takes a lot of work, especially in the early days. As a result, you could end up with less flexibility than as an employee when you didn’t have all the responsibilities of being a business owner.
If your goal is to sell the business in a few years, you will need to build in a way that it can be easily turned over to a new owner. This means having everything running smoothly and well documented, including written policies and procedures that make it a turnkey operation.
Do you have what it takes?
While you might have knowledge and skills in some areas, such as industry knowledge and experience, running a successful business requires many skills, including:
- Financial management and planning
- Marketing sales and customer service
- Communication and negotiation
- Project management
- Delegation and time management
- Problem-solving
- Business development
Lacking any of the key skills will hinder your progress and can lead to failure, so think about what you need to learn and the areas you need help with.
How much money do you need, and how will you get it?
This is a crucial question, as insufficient capital is common for new businesses. Many small businesses are started using personal funds or loans from family and friends. Banks want to see a track record before even considering lending to a business. One option is using your home as security and borrowing based on equity, but this puts your home at risk if you’re not able to make repayments. However you choose to finance a new business, always consider the costs and risks.
Next steps before starting a business
After you’ve answered the essential questions, it’s time to delve deeper into the details with a business plan. This document is the road map for your business that sets the direction for your activities based on what you want to achieve. Typically, a business plan will include:
- An overview of your business, including its purpose, what you want to achieve and how you will start operating the business. If you have intellectual property – such as patents and trademarks – note how these will help you achieve your business goals.
- An explanation of your products or services, how they are created and delivered, the benefits to customers, and how they can potentially stand out in the market.
- A market analysis, including the size of your target market and its growth outlook, industry trends, and how you will compare with your competitors. If you have a limited budget, you can do this on your own using resources such as the Australian Bureau of Statistics and IBIS World industry reports.
- A marketing section specifying your marketing goals and activities. Aspects can include how you will segment your market – such as geographically and types of buyers; your targeting, positioning, pricing and advertising strategies; and the messaging tone and style most suitable for your target market.
- A SWOT analysis detailing your business’s perceived strengths and weaknesses and potential opportunities and threats.
- An operations section showing the basic processes and procedures, and staffing, equipment and property requirements. While you might not need a detailed HR plan initially, it pays to think ahead about staffing needs as your business grows.
- A financial plan section that includes key financial performance indicators and projections. This section will also show lenders and investors the financial position of the business over time. Cash flow is a big challenge for many businesses, so a cash flow statement (which makes cash flow projections) will uncover gaps that require finance. For example, a seasonal business will have cash flow peaks and valleys. Also, the gap between selling a product or delivering a service and getting paid for it will create cash flow challenges. Ultimately, dollars and cents will be the lifeblood of your business.
Your business plan is a key document that shows you’ve done some serious thinking and research. It will go a long way in building the confidence of lenders and investors when you’re seeking funds to grow. Remember that your business plan is not set in stone – it should be updated as your plans, knowledge, and conditions change. It need not be a chore but used as an opportunity to put your dream down on paper!
Getting outside help when you need it
There is so much to do in a business that one person can’t do it all. For example, at Myssy + Co, we handle the numbers side as a virtual CFO. As part of your leadership team, a virtual CFO knows the finer points of financial management at a fraction of the cost of hiring a full-time CFO. Reach out to the Myssy + Co team to find out more.