What Do You need Before You start Your Own Business?

Starting A Business

Volume III

What Do You Need Before You Start Your Own Business? 

In Volume I of this series, we discussed Why anyone should go into business. It is not as obvious as one may think. Volume II pertained to Who should do so.  Not everyone is cut out to take on the pressure and responsibilities. We now will discuss, what is needed to open a business. What preparation must be made before considering applying for registering the corporation. What the budding Entrepreneur must have firmly in mind and in his/her hands before anything else. It is imperative that you know all there is to know about the product or service you wish to produce. You must know who your costumers/clients are, and know them better than they know themselves. Just as important as the previous two points, you must have a deep knowledge of your competitors, their history, capabilities and their share of the existing market. Finally you need to have a very clear and precise idea of how much all of this will cost you for the first year. In other words you need a solid, well thought out, plan of action.

The Product/service to be produced:
As the future owner of the company that is to supply the product or service, it is of the utmost importance that you know all there is to know about it. Compare your product with those already being offered in the marketplace. Analyze the competition's design, from a functional and an aesthetic standpoint. Compare the customer service being offered with what you are planning to offer. Compare the Market price of the competition to your projected sales price. Compare the delivery time of the other products and see if you can match  those or do better. Study you delivery time with precision, from the time your customer places the order till the time you deliver it to his door, what will it take to improve the delivery time without affecting the quality of the product nor its cost to you and consequently the sales price to the consumer. Study the materials and semi-products you will need to supply your service  or manufacture/assemble your product. Chose carefully, not just based on price, but also on lead time of delivery, terms and conditions of sales, stability and reliability of the enterprise supplying. Their financial strength is very important to you. The stronger they are the better they will be able to give you better payment terms, and the less chances they will fold at the first sign of economic slowdown, leaving you stranded under-supplied at a time when you can not disappoint a single customer. Do not neglect to factor your logistical transport in your analysis of your product. Transport of materials and semi-product from your supplier to you if you offer a service. In addition to that, the transport from you to your customer if you are in the Manufacturing sector.

The Consumer:
Study the demographics of your target market. You need to know who is buying a similar product and service. You need to know how old is the average client, where he lives (urban, Suburban or Rural area). How many of the products does he purchase in a given time period. Does ethnicity and culture play a role in his buying decision of your product, if yes, find out exactly which role and most importantly why. Knowing this will help you better target your customer from a communication point of view as well as in terms of new product launch. If different segments of the population buying different products for their own reasons, knowing such would allow you to produced products targeting each slice of the demographic pie, thus reaching your target more effectively than if you tried to come up with a "One Size Fits All" type of product or line. Knowing who buys that product is important, but even more important is knowing why. This knowledge will allow you to stay ahead of the trends and predict up and down buying trends. It will therefore be much easier to plan ahead for increases staff and materials purchasing when you expect upcoming increase in sales, and by the same token, you will be able to slow down your production in prevision of an expected slowing down. That way you will not be out of stock and miss potential sales when a boom in sales comes by, neither will you overstocked and overstaffed when business slows down, which will eat away at your profits. Finally, there is one point of which you must absolutely know, particularly concerning your own product/service: You MUST know why the consumer would NOT buy your product. It is often necessary to do a test run in order to know just that. That knowledge will give you more insight in your customer base that all the above info combined. If you ask a customer why he buys or uses a given product, he will give you a myriad of reasons, none of which are very crisp in his mind and they often changes based on a multitude of factors. He himself is never completely sure why he would by this one over the other. However, ask anyone why they are NOT consciously buying a particular product and service and you will receive instantaneously, unequivocally the reason WHY. He may not be sure why he buys, but he is certainly very sure of why he is not or would not buy a given product or service.  That is often the clearest message you will get in your study of your customer. So don't overlook that point, too many do to their detriment.

The Market: 
Knowing your product and the product of your competition is important. So is knowing your customer. However, knowing your market is equally as important. Too many starting Entrepreneurs neglect that aspect. You need to know what is the size of the current market for your product (how many Dollars are being spent in a given market for a product similar to yours right now). Yes, even if the market is very large and you are planning to start very small. You must know the size of the market, you must know what share of that market each of your competitors have carved for themselves. This will tell you what is left of the pie for you to conquer. If the slice is too small for an additional supplier of that particular product, then you must know if you can carve your share out of one of your competitors, by tweaking your product to compensate for the eventual lacks of the competitor's product, in quality, functionality, price, presentation, delivery lead time...etc. If that is not feasible, then it is better to know it now and abort the launch of the company rather than forging ahead, spending time, money, effort and credibility to eventually lose it all for naught.

The Starting Capital:
All the above information adds up the cost of launching a business. Your projections of cost of product or service, for design to delivery will give you the cost of operation that can then be projected on a 1 year and 5 year expectations. Don't rely on your own calculations for this. Invest in the services of a professional auditor, preferably someone certified in accounting with experience in start ups. Choose carefully your accounting firm. Plan to build a relationship with your accountant. He will be your objective adviser and your evaluator during the first years of your business. He will help you navigate your business through its growing pains. You must be confident of his abilities, trust in your fiscal and accounting counsel is very important. It is as necessary as a compass is to the Navigator fighting an Ocean Storm at night. Do not neglect such a point, you'll do so at your own peril. For those of you located or wishing to be located anywhere along the Eastern Seaboard or the USA or in the Caribbean, I can only recommend a trusted friend, Joseph L. Rosenberg CPA. The capital require is not just what you need to open the doors. You must have enough reserve to create a positive cash flow. You may not get your first sale the very first day and even if you do, you cannot expect to pay for your first month expenses with your first sale. Ideally you should have at least the initial amount of funds required to operate fully for the first 12 months of your business existence even if you do not take in a single penny. (Hopefully you will not need to wait a full year to register the first revenue, but that safety reserve will afford you the benevolence of your financial institutions. It will allow you to let your money work for you rather that the other way around. This of course is the ideal situation, but if you cannot have the first 12 months of budget safely tucked away on your business account, you must have at least the first quarter. We will cover the details of this advantage and how it relates to both your financial/banking associates and your suppliers in Volumes VIII and X.

Each of the above points are quintessential knowledge for the Start-up Entrepreneur. Without in-depth knowledge of anyone of these points, the risk of premature failure increases ten-fold. No matter how prepared you are, life, the world, the market will plot together to throw a wrench in the gears of the "proverbial machine" that represents your best laid plans for your new enterprise. Expect it, plan for it and overall prepare for its devastating consequences. If you are prepared, you will be able to recover faster, won't be as affected as much emotionally, which will speed up your reaction and adaptation time so you may learn from it and keep going without stopping, slowing a little perhaps but not stopping. Each point above is required to construct the most rudimentary of business plan. The Entrepreneur needs to work on the details of the elaboration of the business plan personally and on his own. This is not a task that can not and must not be delegated to anyone. The owner of the future business and his partners if he/she has any must put together the business plan, going through each of the above points. Even if it is not perfect, it is required to ensure that the owners understand what it will take to start. Only after that exercise is done, will you be able to present your vision of what you wish to do accurately to the professional business plan writer. S(he) can only address the points you have presented, rearrange them, fine tune them, research the facts and the data behind them, but they must be there in the first place. Otherwise, the business plan will be about a business they envision, not the one you have in mind. Since they are not the ones who will be running the business, their vision is of no use to you if you plan to run your own business. You present what you need and they put it in proper perspective, but they must have something to work with. A business plan is important. It is your road map for the first 5 years. It will help you evaluate your progress and help you keep track and make the necessary adjustments. You need it for yourself, even if you do not need a financial institution's financing or an equity partner's funding capital. It is as important as your mission statement. It will keep you on course and true. .

Going into business is not a flight of fancy. It is a vision that needs deep, careful and patient though and analysis to bring it to reality. You also need to add to it a healthy dose of courage, sweat and a boat load of elbow grease.

So now we know why you should go into business. We also who should start a business and we just discussed what are the basic requirements you need before you take the plunge. Next we will talk about WHO should go into business with you, as equity partners if you need them.