Follow These 9 Rules To Give Your Business A Fighting Chance
By Jan NormanWhen NASE Member Mark Hayes graduated from college with an engineering degree, he thought he would get a job and climb the corporate ladder.
“I quickly realized that I didn’t like working for someone else,” says Hayes, now owner of Blue Ridge Homes of Tennessee in Nashville. “I wanted a flexible schedule so I could do what I wanted when I wanted. I realized if I was going to be successful, I had to work for myself.”
Many self-employed individuals come to a similar conclusion. But simply going to work for yourself doesn’t guarantee success. Most new micro-business owners need to follow at least a few tried-and-true rules to give their startups a chance to survive.
“It would be a dream come true if one could just focus on that number one thing that must be done to ensure a successful business venture,” says NASE Member Sandy Panek, owner of County Saddlery, a professional saddle fitting service in Amissville, Va. “However, in the beginning there is not just one thing, but many things that must be done simultaneously to increase the odds of success.”
Panek is right.
So for those of you just launching your micro-business, here are nine things you can do today to get yourself and your venture pumped up for a successful startup.
1. EVALUATE THE BUSINESS
Sandy Panek was confident of her ability to run a business. Her fundamental question was whether saddle fitting was a moneymaker.
“Does this business make sense? Does it fill a niche in the market, and will people be willing to pay for it?” she asked herself. Her research convinced her that the business was a go. She found that sufficient numbers of horse owners want to protect the health of their animals and are willing to pay a professional to fit saddles properly.
If you’re going to make a living, your business must meet a need that is currently unsatisfied in the marketplace. That determination requires market research.
2. RESEARCH YOUR MARKET
“The biggest problem we see at SCORE is that people don’t think through how things get sold,” says Jack McSunas, a member of SCORE, a volunteer business counseling organization.
NASE Member Jere Smith agrees. With her husband, she owns Lancelot Inc., an accounting and engineering firm, and a Mr. Transmission auto repair service in Lincoln, Mo.
“Even if you’re sure what you want to do, take the time to research the industry,” she says. “Find out what has made others successful, what is needed for the startup, what normal expenses are and industry trends.”
3. WRITE A BUSINESS PLAN
Once you’ve done your research and understand your market, Smith adds, “spend the time putting together a top-notch business plan that includes a detailed marketing plan. You want to hit the ground running.”
No business is too small or too simple to benefit from a business plan, says Linda Pinson, creator of Automate Your Business Plan software (www.business-plan.com) and author of the book Anatomy of a Business Plan (Dearborn Trade, 2004).
“Writing a business plan is laying out everything about your business so you can see it and adjust things so the business is most profitable,” Pinson says. “If you want to borrow money or attract investors, you must have a business plan. But it’s also an owner’s guide for growing the company.”
Real estate renovator Hayes is a firm believer in business plans. “I struggled with my plan because real estate has so many different aspects. My plan changes every year, but it’s still written down.”
You can turn to the NASE ShopTalk 800® consultants to get the guidance for drafting a business plan specifically for your micro-business.
To find out more, go to www.NASE.org and enter “ShopTalk” in the Quick Link box.
4. CHOOSE THE CORRECT FORM OF OWNERSHIP
Most micro-business owners don’t give much thought to their legal form of ownership and become sole proprietors by default. They might not even be aware that they can set up a partnership, limited liability company (LLC) or a corporation.
“There’s no right or wrong choice that fits everyone,” says attorney Fred Steingold, author of Legal Guide for Starting & Running a Small Business (Nolo, 2003). “The best choice isn’t always obvious.”
Your tax circumstances and potential liability through the business will determine the best form of ownership.
SCORE counselor McSunas says, “We make a recommendation based on risk. If [micro-business owners] own a home and are in a business that is likely to get sued, we urge them to have a corporate shield. If they don’t own much, they might just buy liability insurance and go with a sole proprietorship.”
In some states, an LLC might not provide complete protection from liability, McSunas adds.
The bottom line? Check with an attorney and a tax professional before deciding on a form of ownership.
If you decide that incorporation is right for your micro-business, Business Filings Incorporated can help. The company offers corporation, LLC and nonprofit formation services in all 50 states. Plus, as an NASE Member you’ll receive discounts on any formation order.
To find out more go to www.NASE.org and enter “BizFilings” in the Quick Link box.
5. DETERMINE YOUR LOCATION
Many businesses can start and thrive in a home office.
“But businesses that rely on foot traffic, such as retail stores and restaurants, must choose their location carefully,” McSunas says.
“I had a couple of restaurant clients in places where they couldn’t be found. They failed. It’s as simple as that.
“I have another client who is looking for a new location for his fitness center. He’s most interested in low rent, but he should be focusing on the demographics of the area to determine if enough likely clients are nearby or drive past regularly.”
6. OBTAIN REQUIRED LICENSES AND PERMITS
One factor that goes into choosing a location is government approval, says attorney Steingold. Some municipalities don’t allow home businesses or put restrictions on them, such as no employees or walk-in customers.
Cities also have building and zoning codes that restrict the types of businesses operated not just in homes, but also in commercial locations, he says. “In some communities you must get a zoning compliance permit before you start your business. Other communities simply wait for someone to complain.”
Cities, counties and states may have other requirements, such as health permits for food businesses. Occupational licenses may be required, such as for auto mechanics or cosmetologists, Steingold adds.
You can be forced to close if you ignore such requirements. So know the rules before you open your doors.
7. PUT FINANCES IN ORDER
Don’t ignore opening a separate business bank account and setting up proper record keeping for the business. Make sure your personal finances are in order too, because in the early years, lenders and suppliers depend on the owner’s personal financial history when evaluating a business.
Real estate renovator Hayes offers this caution: “If you don’t know how to handle your own personal finances, you’re going to have trouble handling business finances. I keep the records myself and hire someone toward the end of the year to do the taxes. At first I used [Microsoft] Excel spreadsheets, but now I use QuickBooks.”
Hayes isn’t alone. More than 2.5 million businesses use QuickBooks, making it the most widely chosen small-business accounting software. NASE Members can save up to 20 percent on the package and get free shipping. To learn more, go to www.NASE.org and enter “QuickBooks” in the Quick Link box.
8. GET A MENTOR
Hayes attributes his successful startup to finding someone experienced in the real estate industry to mentor him.
“I was able to shadow him and learned a lot from him,” Hayes says. “I bought my first two properties from him. It was a win-win situation. He made a little money, and in return I learned the business.
“We built our relationship, and I was able to pick his brain as I experienced new circumstances,” he adds.
9. BE FLEXIBLE
Even with this to-do list, you must be prepared to make adjustments when things don’t go as planned.
“Nobody is going to care about your business and money like you,” says accountant and franchise owner Smith. “There were a couple of experiences I would have preferred not to have. I went along with advice regarding the lease and whom to hire. We lost business, money and opportunities due to this. I won’t make these mistakes again.”
Her willingness to make the necessary changes have helped Smith succeed in spite of initial errors.
Jan Norman writes about entrepreneurial issues. Her latest book is What No One Ever Tells You About Financing Your Own Business. She can be reached at jannormanbiz@earthlink.net.