Before You Launch, Run Through This Checklist
By Melyssa Brown
More than 627,000 new businesses open each year, according to the Small Business Administration, and entrepreneurship is a hot topic, especially here in the Pioneer Valley.
Local colleges have created centers and degrees around entrepreneurship, and organizations have been created to help startup companies prosper through coaching and education.
Whether you call yourself an entrepreneur or not, starting a business can be a significant challenge. Having an idea that inspires you is a good place to start. Once you have that, your passion for the business or its purpose is the most important factor to keep you pushing through the inevitable challenges and decisions that are ahead and are inherent to starting a business. The following helpful tips and guidance will provide resources to get you started down the right path.
The Business Plan
A business plan is a sales tool that should be considered as a first step in any business creation. It will help you raise money, get partners, and, most importantly, get people interested in your business.
Start by creating a document that describes your business inside and out. Describe your product or service. Your product description should take 30 seconds or less to explain. It should be simple and straightforward so that other people (even children) can understand and repeat it back to you. Lengthy or overly detailed pitches, while seemingly chock-full of great information, can actually be counterproductive and aren’t usually as effective at getting the attention of your audience.
Describe the product’s unique value proposition. What advantage does your product offer that no one else does? How is it different from other businesses? Also, describe the market opportunity by answering the following questions: how large is the market? How many total dollars are spent on similar products? How fast is the market growing? Who is your competition? Always remember to state who your customers are. Next, describe how you plan to generate revenue and sell your product or service.
Your customer may want the product or service, but who is actually paying for it? Is the customer paying subscriptions, or are you generating revenue via advertising from other businesses? Next, describe the business strategy or long-term vision. Where do you see the business in three, six, nine, and 12 months, and then in five to 10 years? Think of key metrics and set smart goals to help get you there and monitor your progress.
Describe who the management team will consist of to help you achieve the business strategy. You want qualified employees with relevant experiences to fill the needs of the business. Beware of simply bringing on friends and family — always ensure your team members understand your mission and objective, and not just their relationship with you personally.
A business plan should include projected financial information for the next three years. Explain the basic assumptions and key drivers behind your financial model. Revenue assumptions consist of the number of customers and how much will be charged for the product or service. Startup expenses may include lease/rent expense, building improvements (if needed), equipment, labor, supplies, and utilities.
There are certain costs when you start a business, and there is no negotiating some of it, such as safety precautions, filing fees, and fees for permits and licenses. However, you may be surprised by how many expenses you can cut or at least postpone — for example, using pre-owned equipment until you are making some sales.
Financial projections help determine how much outside financing you need to obtain. There are several financing options, including starting your business on the side while continuing to work full-time, working a part-time job until your business becomes established, waiting to start your business until you have saved up a financial reserve, and borrowing or raising funds, if necessary.
You may already be using the friends-and-family funding technique. Make it clear to them that the money is intended as risk capital, and they might lose it completely, or it may not be returned in the short term.
Technology has made asking the general public for donations and monetary support for a business commonplace. Crowdfunding is a form of finance that does not require repayment, and it will help you not only gauge interest in what you have to offer, but also help you build a customer base. Many times, the startup business will provide perks, such as free products or discounts, as a thank-you for the donations. Also, small-business grants are available from a number of resources, including state governments and private groups.
Although the grant-application process can be time-consuming, it is well worth it if you win the award. Also, even locally in the Pioneer Valley, there are investors and venture capitalists who are willing to fund a promising, high-risk startup business in exchange for a share of the business. They often bring experience, management expertise, and contacts to the table.
Prepare a business-plan deck to pitch to investors and venture capitalists. Create a PowerPoint presentation that addresses each of the major items in your business plan. Each item should have its own slide, and the presentation should be no longer than 15 slides. Begin with a high-level concept and brief, ‘grabby’ statement that sticks in the mind and most importantly tells a story.
Consider including a video of what the product or service does and how it interacts with customers. Investors and venture capitalists will want a preliminary valuation of the company. The valuation helps determine what share of the business you are giving up for what value. It can be a calculation of the future revenue (net earnings) of the business which then uses a discount factor to value it in today’s dollars. No matter which source you raise funds from, be sure to provide key operating, strategic, and accounting information to your financiers periodically.
The business structure can be impacted by your sources of financing. You can change the structure as the financing and business needs change. There are a few options to choose from, including sole proprietorships, general partnerships, limited-liability companies, C-corporations, and S-corporations, as detailed below.
• A sole proprietorship has no legal distinction between the owner and the business. It is a business of one person such as a lawyer, plumber, etc. There are minimal requirements, such as a business license.
• A general partnership is a joint business where the profit and debt are shared by general partners. A partnership agreement is created to dictate how the profit and debt are shared. For both sole proprietors and general partnerships, the business owner has primary personal liability.
• In a limited-liability company (LLC), owners are not personally liable for the debts of the business. LLCs are easy to use, have low setup fees, provide protection of the corporate veil, and are a pass-through tax entity.
• C-corporations are taxed separately from owners, the shareholders own stock in the business, and they require a board of directors who are hired by shareholders and are responsible for the business. C-corporations are perceived as providing the most protection between personal and corporate assets. However, they may have double taxation upon the sale. Your salary is taxed at your personal rate, and business earnings are taxed at the corporate rate.
• In S-corporations, the business pays no federal taxes, and profit and losses are divided among the shareholders to be taxed at their personal rate. The number of shareholders is limited. Work with your accountant and lawyer to determine the best structure for your business.
Determining the business name can be the most important and potentially challenging step. The right business name will help distinguish you from a sea of competitors, provide your customers with a reason to hire you, and aid in the branding of your company. Your name projects your image, brand, and position in the marketplace, so consider your mission statement, your business plan, and your unique selling proposition, and don’t forget to think about your target audience.
The more ideas you generate, the more possibilities you will have to choose from. You may want to conduct a series of brainstorming sessions or use a free business-name generator, such as Biznamewiz, Name Thingy, or Naming.net. Avoid wordplay dangers, and if you want a local name, add it to your marketing materials, such as “exclusively serving the (town) area.” Lastly, put your business name through the spelling test and ask others to spell it.
Once you have chosen a name for your business, you will need to check if it’s trademarked or currently in use. Search the federal database of the U.S. Patent and Trademark Office. You should also run a series of searches with Google and other search engines for your desired business name to make sure there isn’t another company already using your name. Then, you will need to register it with your county or state office. Also, don’t forget to register your domain name once you have selected your business name. Your website address should be the same as your business name.
Licenses and Permits
For a list of licenses and permits, go to the Small Business Administration (SBA) website. The SBA has compiled state-by-state information on small-business registration and license and permit information. Also, obtain a tax/employer identification number from the IRS.
An accounting system is necessary in order to create and manage your budget, track your actual results, set your rates, conduct business with others, and file your taxes. You can set up your accounting system yourself or hire an accountant to take away some of the guesswork. This should include opening a business checking account. Also, understand employer regulations such as new-hire reporting, employer corporate and payroll tax responsibilities, minimum-wage laws, workers’ comp, unemployment insurance, and health-insurance laws.
Lastly, get training and have a support network, which may include family, friends, colleagues, a mentor, a coach, and anyone else who can help you navigate roadblocks and be a successful entrepreneur. When you have an effective support system in place, you will find that you have a cheerleader, consultant, moral support, and even a devil’s advocate when necessary. Continually review and update your business plan and question its key assumptions by using a SWOT (strengths, weaknesses, opportunities, and threats) analysis of the business.