Starting Your Business: Research, Plan, Finance
“Don’t limit yourself. Many people limit themselves to what they think they can do. You can go as far as your mind lets you. What you believe, remember, you can achieve.” –Mary Kay Ash, Mary Kay Cosmetics Founder
Once you have decided that you want to start your business you may have questions, such as, “where do I begin and how?”
The first and most beneficial place to start is to analyze your product and where you see it in the market as of today and down the road. Ask yourself who will use your service/product? Why should they choose you? How does it make their life easier? The answers to these will help you define your business and goals, as well as understand how you fit into the current market space.
RESEARCH
It is extremely important to research how you and your product fit into the current market before launching your business. During this phase, you will gather crucial information that will help you better understand and identify opportunities to secure and grow your fledgling business. This information can include details regarding age, income, hobbies, family, or anything relevant to your business.
Once you have this information take time to answer the following questions:
Demand: Is there a desire for your product or service?
Market size: How many people would be interested in your offering?
Economic indicators: What are the income range and employment rate?
Location: Where do your customers live and where can your business reach?
Market saturation: How many similar options are already available to consumers?
Pricing: What do potential customers pay for these alternatives?
If you are unsure where to begin, start with resources such as the Small Business Administration (SBA) who provides a list of market research resources.
You can also go directly to consumers for feedback which will allow you a more personal understanding of your specific product and audience. This can be time-consuming and will likely have a cost attached which is important to consider when embarking on this route.
Regardless of the option you choose to pursue, this is an important step to understand the “why” of your business, product, and audience.
BUSINESS PLAN
After you have done your market research it is time to compile all your information into a map to help you reach your business destination, this is a business plan. All your know-how, research, and hard work will not amount to much without a functional plan. A well-written business plan will analyze and answer questions such as: What is my business? What is the purpose of my business? Who am I selling to? What are my end goals? How will I finance my startup?
Many embarking on entrepreneurship feel that they can avoid this step because they are working independently in the beginning. Regardless of the number of people involved this proves to be a crucial step in creating and establishing your business. A business plan is important in many respects, the first is that it forces you to put your goals for your business on paper and answer how you will accomplish these goals. By doing this you can avoid mistakes by rushing into business without thoroughly thinking through all the possibilities.
While some may bypass this step it is important to look at the big picture and take into account other factors, such as the future growth of your business. With an updated business plan you have documentation to show potential investors as well as a financial institute to secure funding. This plan will illustrate a realistic and reliable plan for your company that will lend confidence to a lending institution or investors as you grow.
What should your business plan include?
Company Purpose: Define your company in one declarative sentence. Avoid listing features and services and stick to a clear sentence that communicates your mission.
Problem: Describe your customer's pain point. Address how the problem is currently addressed along with any shortcomings that currently exist.
Solution: Here is where you explain why. Why is your product/service different and valuable? Why with it have longevity? And what is next?
Why Now?: Explain why now is the perfect time to launch, and identify why the solution didn’t exist and why you’re the perfect person to create and execute such a solution.
Market Potential: Showcase your customer and market. You can use this time to also show potential markets where your product doesn’t exist but could benefit from your solution.
Competition/Alternatives: Who are the competition, whether directly or indirectly, and show how you can overcome and win.
Business Model: How do you plan to make money and grow?
Team: Give background in regards to you and the other founders along with any other key members, if applicable.
Financials
Vision: If things go well where do you see the company going in five years?
Ultimately a business serves to help guide you and your goals to achieve growth at a steady pace while clearly outlining your business. This allows you to track your business as it continues to move forward as well as help you to overcome any potential difficulties you may face. You can read even more about a step-by-step business plan here and when you are ready to begin writing your plan here are free templates to help guide you.
FINANCES
Starting a business will have a price attached. An exact number varies based on the industry you wish to pursue. When it comes to funding your business will you be self-funding or will you need to borrow money? Are you planning to leave your current job to focus on your business full-time? If so, do you have funds to sustain yourself until you’re profitable?
While you may see your business as a winner, it is always a good idea to think small. Being an entrepreneur is a train but is not an express train. There are no shortcuts to becoming profitable as it will take time for you to eventually turn the corner in your business. Some businesses can face unexpected difficulty by investing too much too quickly before finding success. So there is no problem with starting small and taking your time to build your business and grow. The best thing you can do is take stock of your expenses and estimate any additional expenses that may arise.
One of the best things you can do is perform a break-even analysis. This is a calculation that will allow you to establish at which stage your business will be profitable. To calculate this number you can use the following formula:
Fixed Costs / (Average Price – Variable Costs) = Break-Even Point
Fixed costs: Costs that will remain the same regardless of how much the business sells. You may have heard this referred to as “overhead costs.” Items such as salaries and wages, rent, insurance, and utilities.
Variable costs: These are costs based on business sales. This can include labor from independent contractors, materials, payment processing fees.
Average price: This is the average amount you will charge for your products and services.
It is important to conduct a break-even analysis for a variety of reasons. Most importantly it will provide you the information you need to see how much business you must do to avoid losing money. Some of the most common reason to perform a break-even analysis are:
Determine profitability. A business wants to become profitable as soon as possible. Ask yourself how much revenue is needed to cover expenses? Which products or services turn a profit? Which products or services are sold at a loss?
Price a product or service. Take into account the cost it takes to create the product, as well as the overhead costs so as not to underprice yourself. Ask yourself: What are the fixed rates, what are the variable costs, and what is the total cost? What is the cost of any physical goods and what is the cost of labor?
Analyze the data. This information allows you to strategize for the future thus speeding up your break-even timeline. This can help you implement a better overall financial strategy. Ask yourself: How can I reduce my overall fixed costs? How can I reduce the variable costs per unit? How can I improve sales? What amount of sales have to make to be profitable?
FUNDING
A variety of options exists to help fund your business based on criteria that include creditworthiness, the amount needed, and available options.
Business loans. A commercial loan through a bank is a good place to start. If this is not an option you can opt to apply for a small business loan through the Small Business Administration (SBA).
Business grants. A business grant is similar to loans, only they do not need to be paid back. There are specific stipulations to secure a small business grant. It is best to do some research and apply for those that apply to your specific situation. These can include minority-owned business grants, grants for women-owned businesses, and government grants.
Investors. If you require a significant amount of funding upfront you may want to bring on an investor. Investors can provide a significant amount of startup capital in exchange for the backer to have a hands-on role in running the business.
Crowdfunding. Launching an equity crowdfunding campaign is an alternative to traditional funding. This has seen success in much smaller amounts of money from multiple backers. With several reliable crowdfunding platforms designed for different types of businesses.
FINANCIAL INSTITUTE
It is easy to think each banking institute is the same when it comes to the needs of your business. However, each will provide pros and cons so it is important to select an institute that suits your needs. One option to take into consideration is smaller community banks. You may want to consider this for a variety of reasons that include a close relationship with the community as well as insight regarding the community market in which your business will be operating. Allowing for a more personal banking relationship they may be willing to work with you based on the strength of your business profile and character instead of big banks with much stricter and selective funding practices. Another good thing is that banks within your community work at the branch level which allows a much quicker turnaround, unlike big banks that are handled at a higher level.
Ultimately choosing the right banking institution comes down to you and your business needs. It is a good idea to make a list of what you need from a banking institution and make several appointments to speak with representatives to ask questions about business practices, how they work with small businesses, and select one that works best for your overall banking needs.
