How to Start a Startup | Part 2
Setting up a small business is not a small undertaking and managing a small business is even more difficult. In How to Start a Startup | Part 1, I discussed the first two of nine steps to start your own company. If you haven’t read it yet, please refer back to How to Start a Startup. Please don’t forget to follow me on Facebook, LinkedIn, or Google+ (link is at the bottom of the page).
- Get training, assistance, and network constantly
- Do research and analysis of your idea
- Analyze locations and costs
- Analyze financial requirements and if its feasible
- Write business plan
- Form LLC and register DBA
- Begin process to obtain any licensing or permits (once you receive financing you start owing interest. Get everything time consuming accomplished beforehand)
- Finance your business
- Put your team together - Outsource accounting, HR (payroll, tax withholdings etc), Tax responsibilities (sales tax, quarterly and yearly filings) – The government has made it far too difficult for anyone to do this on their own and it is a mine-field, exposing you to fees, fines, and lawsuits.
- Find a good accountant and he will know everyone you need to know
- Get training, assistance, and network constantly
- Revise business plan within the first 6 months
“It is said that if you know your enemies and know yourself, you will not be imperiled in a hundred battles; if you do not know your enemies but do know yourself, you will win one and lose one; if you do not know your enemies nor yourself, you will be imperiled in every single battle.” - Sun Tzu
What is a Business Plan?
A business plan is just a document that has your business startup goals, ways to achieve those reasonable startup goals, information about you the entrepreneur, your team, your products, competition, and financial information. That’s all? Seems like a lot. Yea it really is a lot when you look at it that way, so let’s break it down a bit.
Components of a business plan
What product is your startup company trying to sell?
A successful business plan will clearly detail each of your sources of revenue. You should also talk about how your product or service compares to other businesses that compete with you. Other areas of consideration are your suppliers and inventory and future changes to your product line that will keep you competitive.
Who's buying from your startup company?
Remember how I suggested doing the analysis of the market and products before writing your plan? This is why. You need this research to understand the size and scope of your market. It may include local population, demographics, and income, foot traffic, vehicle traffic or even e-commerce data if you operate online. You want to consider if the market is growing or not and how you plan to capture market share.
Who else is selling similar things as your business startup will sell?
Refer back to the Sun Tzu quote. You have already analyzed yourself and your product, but now you need to know your competition. Without knowing the competition, you may see success, but you may also have difficulty growing. The goal of this section is to detail where you fit into the market and why your business is needed compared to your competition. How will you differentiate yourself from the masses of other small businesses? Will your product be better, or perhaps it will fill a niche?
How will you tell others about your startup company? Signs, online advertising, networking, and word of mouth are a few possible marketing methods. Detail how people will discover you or your product. Also, consider your brand and what it means and how it is received by people.
All startup companies need to really focus on the financials.
Your financial section needs to include projections for the first few years after the startup of your new business. It should be as detailed as possible, but don’t forget, you are really making it all up. You have absolutely no sales history so realistically all income projections are imaginary, though hopefully based in some sort of reality (unless you have inside information or personal knowledge of another business). Keep it realistic and set good startup sales goals.
What can be very accurate is your costs. You should know all your costs going into any venture and I think the most important aspect of your startup business plan’s financial section is your cash flow analysis. There are different schools of thought, but personally I believe that it doesn’t matter how good your idea is, if your startup company runs out of cash then it’s game over. It should also show when your business will break even and start generating profit.
Operations/Management of your startup company.
Your locations, suppliers/vendors, personnel plan, other general operations, information about you and your team (employee and professional associations such as accountant, attorney etc). Great ideas need a good operations plan and the right team in place to be successful.
Wow! So while preparing for this post, I was able to find a very old draft of our first business plan ever! It's really exciting to look back in time to mid 2010 and see what we were working on. Virtually every aspect of the plan changed over the following year and a half.
Form LLC for your business startup and register DBA
I know that every single book or website about forming a company will go into painstaking detail about if you should form a Sole Proprietorship (SP), LLC, S Corp, or C Corp. They will detail the differences between them all and then tell you to talk to your attorney and accountant to figure out the best setup for you. I can’t tell you what to do, but I can say that I have had an LLC for every single company I have ever run. An S or C Corp is good but a lot more complicated to form and maintain. An SP is super easy to start, but you open yourself up to a lot of liability. LLCs are cheap, effective, and easy to maintain. I’m not an attorney or an accountant so you should go ask them first. You should work with an attorney to draft your operating agreement and other paperwork and your attorney will also ensure your startup company’s documentation is filed correctly with your state.
Registering a “Doing Business As” (DBA) is usually as easy as going to your town/city hall and filing a sheet of paper and paying a fee.
Get Licensing for your business startup
I don’t have much to write about this. Many new businesses don’t require any licensing and some start ups require very rigorous tests and continuing education. You should research what exactly you will need and get it out of the way asap. Remember, every day you waste is lost revenue and accrued interested expense on any loans. Get your business licensing out of the way early to avoid any problems.
Thanks for reading, please don’t forget to follow me on Facebook, LinkedIn, or Google+, like the article, and please leave a comment. In the How to Start a Startup | Part 3, I will go over financing and putting your team together.