Carleigh Machock provides advice on what to consider before and during your journey as a business owner.
Starting a new business is a dream for people. Maybe you have a great idea for a startup company, but aren’t quite sure where to start or what you should consider. Aside from motivation and a strong will to succeed, there are several aspects that need to be addressed before taking the plunge into uncharted waters. It’s vital to have a solid understanding of the financial position and direction of your future company. Take time to think through these five aspects of starting a new company as you gear up for your new endeavor.
You’ll Need Cash
Having cash on hand is an obvious first on the list, and usually the first hurdle for many new entrepreneurs. You may not have $50,000 stashed away in your savings account, but you may have equity in other assets that you can tap into. Borrowing against the equity in your home is a common means of cash for many new business owners. Alternatively, if you have a healthy investment account, you can take cash out through a securities-based line of credit where your stocks, bonds, and mutual funds are used as collateral.
Another option is using a venture capitalist. This route will require you to hustle a bit harder for your funding. Unlike banks, you can’t simply run a Google search for loan options and compare interest rates. Finding the right venture capitalist will require meaningful networking and fruitful business contacts. Once you find a venture capitalist willing to hear your pitch, prepare for an in-depth presentation with heavy Q&A. Although this route takes significantly more leg work, you will have more control over how you spend your money as opposed to a bank loan where strict financial requirements and covenants can become deterring.
Cash Needs of Operating Your Business
Determine the bare necessities of your new business. How much cash will you need in order to get things up and running? How much will you pay per month for expenses such as rent, utilities, equipment, professional fees, advertising, employee wages, interest and taxes? Decide what expenses are required for running your business and stay within that budget. Try to maintain a thrifty mentality when purchasing items such as furniture, equipment and vehicles, and consider buying used or leasing to keep costs low. It’s critical to have more cash than needed as a business owner. There will be uncontrollable expenses that arise throughout the year, and you want to keep your employees and the lights on, without running into a lawsuit. You can always upgrade to that swanky high-rise office once your business is financially sustainable.
Determine Your Revenue Source
You’ve got the cash to start your business, you’ve set up shop and are raring to go, but have you truly mapped out your sales plan? What is your revenue structure? How will your revenue stream flow year after year? Sales are the make-it-or-break-it factor in your company and should not be taken lightly. You must have a sales plan in place and have the ability to think in terms of generating sales. If you are a service provider that sells contract work, such as an architect or builder, keep in mind that your business is only as good as the next contract. This sort of business will require heavy advertising and to get the word out, so be prepared to shout it from the rooftops. Similar to a contractor, a restaurant or food service will also require plenty of advertising and recurring patronage, so get ready to stand outside in a chicken suit to pull your customers through the door.
Consider setting up a recurring service or product to supplement your contract income, or even as your main source of income. For example, a service that occurs once a month and auto renews. Also, give customers an incentive to prepay for your service. When it comes to sales, stay a few strides ahead of the game and always be aware of new opportunities for revenue growth.
The Price is Right
Not figuring out a price point is like dropping the ball down the Plinko board; you may win, you may lose, but the odds are against you. There are several key factors when determining the price of your product. Consider all of the time and expenses required to get your product or service to the market. Researching similar products and services will guide you in this exercise. What are your competitors charging? What will you offer that adds value (and possibly a higher price tag)? What do you offer that allows you to sell at a lower price? How many units/services do you plan to sell? You must set a price that fits your product and doesn’t steer away potential buyers but also covers overhead costs and ultimately leaves you with a healthy bottom line.
Prepare for Setbacks
In business, as in life, not everything will go as planned. Owning a business is challenging and rewarding at the same time. Stay versatile and be ready to have an alternate route in the event of a road block. Remember that setbacks are good for business; they will help you re-evaluate situations you may not have noticed had the setback not occurred. Continuous evaluation of your production and growth is imperative to maintain steady growth and success. Learn how to analyze your cash flow and budgeting. Establish a relationship with a good accountant who will help guide you in the right direction when making business decisions. A good accountant is like having a financial GPS; such guidance from the beginning will propel you farther down the road than figuring it out on your own.
Starting a new business should be an exciting challenge. If you are seriously considering taking the dive, be sure to consider these five aspects before and during your journey as a business owner. Understanding your business finances is the key to longevity and success.