Starting a small business is an exciting adventure, but the decision to become your own boss should not be taken lightly.
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Here are six steps to take into account and plan for before taking the leap into entrepreneur land.
Make a Flexible Business Plan
Map your business out on paper, the experts suggested, making it easier to visualize your plan of action.
“You definitely need a written business plan so you know where you’re going and how you’re going to get there,” said Mary Reed, owner of Mary Reed Public Relations.
“You also need to be flexible, knowing as time goes on, some of your expectations may change, the reality of your situation may change and you’re going to have to adapt.”
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Analyze Your Potential Market
Knowing your market from the start will lead to strong revenue streams in the future, the experts said.
Bob Prosen, president and CEO of The Prosen Center for Business Advancement and author of Kiss Theory Good Bye, suggested analyzing the following questions:
•What’s the size of the market of what I have to offer;
•Is the market growing;
•What’s the demand for my product or service;
•Who are the competitors, how successful have they been and are they growing or shrinking?
“It’s really an understanding of the market and the value that your customers or intended customers are placing on the product that you’re offering,” Prosen said.
Calculate Your Cash Flow Needs
Cash flow is one of the most important elements of a startup and bad planning at the start could be your downfall later, the experts warned.
“Cash flow tells you a lot about the health of a business,” explained Prosen. “You always need a lot more money and access to capital than what you anticipated. Always overestimate and make sure you have enough sources that you can cash into to achieve the full amount.”
You need to have a backup plan in terms of where you will get money should you encounter financial difficulties. Reed suggests establishing a line of credit with a bank or setting aside an emergency savings account.
Many companies grow rapidly at the beginning but end up going under later in life due to poor planning and management of cash flow, said Eric Tyson, co-author of Small Business for Dummies.
“Just because your business is growing and you’re getting more customers doesn’t mean that you’re home free,” he explained. “Your expansion plans and the cost of doing business can get out of whack with your revenue growth. Cash flow is probably the one of the most important financial variables that you need to be tracking to make sure you’re on track and not going to be running out of money.”
Know Your Target Audience and Their Needs
Knowing your target consumer base is critical for marketing, said Reed.
Reed advised all potential entrepreneurs to ask:
•Who are you going to go after?
•How are you going to appeal to them?
•What web sites or magazines are you going to advertise on?
•What kind of public relations campaign are you going to conduct?
“If you don’t understand what your customer needs and don’t identify the target correctly, you’re going to end up wasting precious time and sales dollars trying to convince people that they need your product or service,” explained Prosen.
“When you’re selling your product or service to either a business or consumer, you have to understand what the business’ customers need. That’s what they’re trying to satisfy.”
Know What You Want from Employees
Before you decide to enter into a partnership or hire employees, identify the type of people you want working with you.
"If you have one wrong person; they don’t share your vision or understand what you’re trying to accomplish, it can ruin the whole organization,” said Dave Evans, co-founder of WorldWideSalesTraining.com.
You need to consider what type of people you work best with, especially in the case of a partnership.
“If you’re taking on a partner, it’s kind of like getting married,” said Tyson. “You want to discuss as many things as you can before you get ‘married’ and disperse them. You should put an agreement in writing so that you’re literally on the same page.”
Expert Advice: Taxes and Legal Liabilities
Depending on the business, startup entrepreneurs may want look to professionals for advice on issues such as taxes and potential legal liabilities. The experts suggest forming a team of legal and financial advisors to protect your company and your personal assets.
“You want to make sure you have a respectable CPA--someone you trust, someone who is going to do the right thing,” advised Evans. “The right CPA is as critical as having the right employees. If they give you the wrong advice, you could be in trouble.”
Depending on the state you’re in and the type of business you’re starting up, taxes can be simple or very complicated, so you may want to hire a tax attorney to guide you through the process.
“A tax attorney understands the ramifications of how you set your business up and can help you minimize taxes,” said Prosen. “I would rely on expert advice here and not just go by research and the seat of my pants.”